The IKEA Effect is the somewhat tongue-in-cheek name for a cognitive bias that leads individuals to assign greater value to an item or idea on which they have directly expended some form of effort, time, and labour. The link with the Swedish manufacturer, IKEA, is obvious, as most items purchased there typically require some assembly and this expenditure of labour does not appear to dampen the market’s enthusiasm for their products.
A Harvard Business School Working Paper by Norton, Mochon, and Ariely entitled The “IKEA Effect”: When Labor Leads to Love (2011) elaborates on a series of studies in which consumers were asked to assemble IKEA items, fold origami, and build Lego sets. The authors of these studies set out to “demonstrate and investigate the boundary conditions for what we term the “IKEA effect” – the increase in valuation of self-made products”.
This struck me as an interesting (albeit counterintuitive) phenomenon, as I was convinced that most people felt as I do about IKEA furniture – a ‘headache’ to assemble! Yet the research conducted by Norton et al. points conclusively to the theory that “labour [if it is successful] leads to love, and this, in turn, results in the overvaluation [of items or ideas]” (Norton et al., 2011).
Undoubtedly, the IKEA Effect has enormous implications for many areas in the sociopolitical sphere, but as business is our principal area of interest, we shall look at some of the more critical business implications.
Let us look at, for example, an organizational pitfall referred to as “sunk cost effect” (Arkes and Blumer 1985; Staw 1981) that very closely mimics the negative implications described by the IKEA Effect. This bias can lead managers to continue to devote resources (often in limited quantity) to failing projects for no reason other than the fact that they have previously invested their labour and money in these projects. A more rational approach might be to drop the failing project and ‘cut your losses’.
The “not invented here” syndrome, similarly, can cause managers to discount good ideas developed elsewhere in favour of their (sometimes inferior) internally developed ideas (Norton et al., 2011). Falling in love with your own concepts and ideas runs completely counter to our belief in the value of promoting optimal solutions by encouraging questioning at all levels of an organization. As we all know, the freedom to question can lead to the airing of diverse viewpoints and the obligation to allow the best ideas to go forward and take the lead.
Unfortunately, the research results above suggest the opposite. In the words of the researchers: “when managers persist in pursuing failed projects and concepts, they may do so because they truly come to believe their ideas are more valuable: Not pursuing them would be leaving money on the table, and using a competitor’s ideas would simply be choosing an inferior option”.
As business owners, managers, and workers, it is incumbent upon all of us to remain alert to this dangerous pitfall and to not allow an excessive belief in the importance of our own ideas and actions make us vulnerable to the crippling consequences of the IKEA Effect.