Insight: How the ‘IKEA effect’ subtly influences how you spend

How the ‘Ikea effect’ subtly influences how you spend

There are some anecdotes just so good that almost every story about a particular economic principle begins the same. So too this article begins with cake mix. In the 1950, the story goes, US food company General Mills wanted ideas on how to sell more of its Betty Crocker brand of instant cake mixes.

The Ikea effect – “that labour alone can be sufficient to induce greater liking for the fruits of one’s labour” – was named in a 2011 paper in the Journal of Consumer Psychology by Michael Norton, Daniel Mochon and Dan Ariely. They chose the name because products from the Swedish manufacturer typically require some assembly.

The Ikea effect is connected to, but not quite the same as, a number of other important economic behaviours.

First, there is the endowment effect, in which simply owning a product increases its perceived value. Though this effect has long been recognised, it was formally named by economist Richard Thaler in a 1980 paper. Since then many studies have demonstrated that individuals usually want more money to give up something they own than they are willing to pay to acquire a similar item from someone else.

Second is the psychological idea of effort justification. This goes back to studies in the 1950s. The idea is that an individual who makes a sacrifice to achieve a goal rationalises the effort by attributing greater value to the achievement. In one celebrated study, for example, women made to undergo an embarrassing initiative to join a social group subsequently rated membership of that group higher than those who did not.

Third is personal preference, which is expressed in consumers being attached to particular brands. Being involved in the creative process might be regarded as an extension of this attachment to individual tastes, something companies seek to leverage through customisation options.

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