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IKEA Effect/Bias

Definition 1

Overvaluation of a product, belief or process in which there was participation in its development or completion. Related to the Endowment Effect but does not require ownership.

Source: Behavioral Science Lab, 2017

Definition 2

While the endowment effect suggests that mere ownership of a product increases its value to individuals, the IKEA effect is evident when invested labor leads to inflated product valuation (Norton et al., 2012). For example, experiments show that the monetary value assigned to the amateur creations of self-made goods is on a par with the value assigned to expert creations. Both experienced and novice do-it-yourselfers are susceptible to the IKEA effect. Research also demonstrates that the effect is not simply due to the amount of time spent on the creations, as dismantling a previously built product will make the effect disappear.
The IKEA effect is particularly relevant today, given the shift from mass production to increasing customization and co-production of value. The effect has a range of possible explanations, such as positive feelings (including feelings of competence) that come with the successful completion of a task, a focus on the product’s positive attributes, the relationship between effort and liking (Norton et al., 2012), a link between our creations and our self-concept (Marsh et al., 2018), as well as a psychological sense of ownership (Sarstedt et al., 2017). The effort heuristic is another concept that proposes a link between perceived effort and valuation (Kruger et al., 2004).

Source: Behavioral Economics

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