Episode Details

On today's behavioral economics foundations episode we are going to be talking about the IKEA effect as well as the effort heuristic. I've loved the IKEA effect concept since the moment I heard its name. It is such a quirky title, but so clear for what this concept is all about.

In its most basic form, we value things that we put effort into more than things we don't. I'll talk more about the details and nuances as we go through the episode and there are many more ways to use this concept than assembling your own furniture.

We take a look at ways the IKEA effect plays out in our lives as well as our businesses. The IKEA effect doesn't just have to be used for product businesses. The IKEA effect can play a huge role in change management. Tune in to learn more about the IKEA effect and how it impacts our lives and businesses.

• [00:58] In its most basic form, the IKEA Effect is that we value things that we put effort into more than things we don't.
• [03:52] The core of this concept is that when people have an opportunity to build something themselves and when they put some effort in, they will value that thing higher than something they didn't build.
• [04:30] Some studies have attributed this to the pride felt when assembling something yourself, and that is part of it, but it isn't the whole story.
• [05:19] The endowment effect is the phenomena in our brains where simply owning something causes us to find more worth in it than what other people see in it, or in its stated price.
• [06:47] It may seem like the IKEA effect is merely an extension of the endowment effect, but studies have shown they are different. Even when people built something and were told they could not keep it, they still valued the item they made higher than those made by someone else.
• [09:05] This phenomenon makes it clear why people think their own artwork is worth more than people will pay for it, or why they ask for a lot more money than their home is worth if they put a lot of "sweat equity" into creating it. We tend to think that our effort ties into the direct value and that something we spent a lot of time on is worth more to everyone else as well.
• [10:12] Humans use effort as a guide for value even when we are not the ones putting in the work. This is known as the effort heuristic, which has found that even when we don't have direct memory of the work in question (i.e. we didn't do it ourselves), we still connect effort and quality together.
• [12:25] Whichever painting or poem people were told took more time to complete was the one they tended to like more and they valued it higher.
• [14:17] When the image being shown is of high resolution, you can see the quality, and so that can impact the valuation in addition to the number of hours you were told it took to create.
• [15:22] When the quality can't be easily determined by our eyes, other pieces of information will guide the brain's determination of value.
• [17:26] The IKEA effect says that we value things higher when we put effort into them. So, the effort heuristic is present within our own IKEA effects, but when someone else is putting in the work, it can trigger the effort heuristic without being the IKEA effect.
• [18:08] When you are exchanging dollars for hours, it reduces the effort to each 60-minute increment.
• [21:02] When you are putting a value on your time, it is really hard to get individual hours to reflect your expertise and the true effort you have put into your career. The value you provide is often in the time yo