The IKEA effect

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We love it more if we made it. Or, more scientifically perhaps, the IKEA effect is ‘the increase in valuation of self-made products,’ when we have put more effort into it.

Turns out, if we’ve put effort in ourselves we’re also likely to think that others will like it even more just as we do—usually not the case. But for us at least, more effort = more love.

Watch Dan Ariely do a great job explaining some experiments that lead to this conclusion , or read the full paper, The “IKEA effect”: When Labor Leads to Love (pdf), Norton, Mochon, Ariely HBS working paper, 2011.

Dan points out that kids are the ultimate expression of the IKEA effect: they’re very hard, they don’t come with instructions and they take a lot of effort.

Also see The Betty Crocker Effect, or ‘the egg theory.’

Published 5 May 2016

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The decoy price

The Betty Crocker Effect

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The technique of adding a significantly more expensive option in order to instantly make the other options look reasonable by comparison. These kinds of manipulations have been shown to be scarily effective. For example: Pricing decoys are another way retailers get you to part with more money than you planned on. In his book Predictably Irrational, behavioural economist and professor Dan Ariely demonstrates how a large magazine successfully employed a strategy called the “decoy effect” to increase revenue from subscription sales. Prospective subscribers were given three choices: 1. Web-only subscription for $59 2. Print-only subscription for $125 3. Web + print subscription for $125 At first glance, the middle price point appears to be superfluous. Why would anyone buy a print-only subscription for $125 if they could get a web and print for the same price? Ariely tested the price points with MIT students and found that 16% of students chose option 1 and 84% chose option 3; not surprisingly, none chose option 2. Then Ariely did something really interesting; on the assumption that having a decoy price (option 2) was influencing people’s choices, he removed the decoy and retested the price points. This time, the subscription choices were as follows: 1. Web-only subscription for $59 2. Web + print subscription for $125 With the decoy removed, the option that had previously been the most popular – the more expensive print + online access subscription – suddenly became the least popular choice. Only 32% of those surveyed chose the more expensive option, with 68% selecting the online-only subscription. Clearly the middle price point wasn’t superfluous; it was smart marketing that made option 3 look more attractive to subscribers. Avraham Byers, Here’s why you should always pay full retail price, Financial Post, April 22nd 2014…The technique of adding a significantly more expensive option in order to instantly make the other options look reasonable by comparison. These kinds of manipulations have been shown to be scarily effective. For example: Pricing decoys are another way retailers get you to part with more money than you planned on. In his book Predictably Irrational, behavioural economist and professor Dan Ariely demonstrates how a large magazine successfully employed a strategy called the “decoy effect” to increase revenue from subscription sales. Prospective subscribers were given three choices: 1. Web-only subscription for $59 2. Print-only subscription for $125 3. Web + print subscription for $125 At first glance, the middle price point appears to be superfluous. Why would anyone buy a print-only subscription for $125 if they could get a web and print for the same price? Ariely tested the price points with MIT students and found that 16% of students chose option 1 and 84% chose option 3; not surprisingly, none chose option 2. Then Ariely did something really interesting; on the assumption that having a decoy price (option 2) was influencing people’s choices, he removed the decoy and retested the price points. This time, the subscription choices were as follows: 1. Web-only subscription for $59 2. Web + print subscription for $125 With the decoy removed, the option that had previously been the most popular – the more expensive print + online access subscription – suddenly became the least popular choice. Only 32% of those surveyed chose the more expensive option, with 68% selecting the online-only subscription. Clearly the middle price point wasn’t superfluous; it was smart marketing that made option 3 look more attractive to subscribers. Avraham Byers, Here’s why you should always pay full retail price, Financial Post, April 22nd 2014

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