Co-create/co-design (IKEA and endowment effect) as Part of Behavioural Economics
Introduction
Both the IKEA effect and the endowment effect are powerful behavioural economics principles that show why people value things differently depending on effort and ownership. They are highly relevant in change management and communication.
The IKEA Effect
- Named after the Swedish furniture company IKEA, where customers build their own furniture.
- People tend to overvalue things they’ve built or contributed to, even if the end result is imperfect.
- Psychology: Effort of Pride to Attachment.
- Example in change:
- If employees help co-design a new process, they’re far more likely to embrace it, compared with being handed a “ready-made” solution.
- Participation breeds ownership.
The Endowment Effect
- People place a higher value on something they already own than on the same thing, if they don’t own it.
- Psychology: Loss aversion: giving something up feels worse than gaining something new feels good.
- Example in change:
- Employees may resist a new system because they value the current one more (not because it’s better, but because it’s theirs).
- People are reluctant to let go of familiar tools, roles or routines, even if the replacement is objectively better.
How They Work Together in Change
- IKEA effect can be used to your advantage: involve people in building the new system/process so they feel it’s theirs.
- Endowment effect explains resistance: people cling to old ways because of psychological ownership.
- Successful change communication often balances both:
- Honour the past (acknowledge what people built before).
- Invite co-creation (so they value the new future more).
IKEA Effect vs Endowment Effect in Change Management
| Topic | IKEA Effect | Endowment Effect |
|---|---|---|
| 1. Definition | People overvalue things they helped create. | People overvalue things they already own. |
| 2. Psychology | Effort of Pride to Ownership | Familiarity to Loss Aversion to Resistance |
| 3. Typical Example | Employees support a process they co-designed. | Employees resist replacing an old system they know. |
| 4. Risk | If excluded from design, employees disengage. | If forced to “let go,” employees resist or stall. |
| 5. Change Application | Involve people in building the new solution to create buy-in. | Acknowledge and honour past contributions, then show value of new. |
| 6. Shared Insight | IKEA builds attachment to the new. | Endowment clings to the old. |
| 7. Practical Tip | Run workshops, pilots, or co-design sessions. | Use “sunset rituals” to celebrate the old before moving forward. |
Key takeaway:
- Leverage the IKEA Effect to generate buy-in by involving employees in shaping the future.
- Manage the Endowment Effect by honouring what people feel attached to, then guiding them to see benefits of change.
- Effective change balances both forces: “build the new, respect the old.”
Summary:
- IKEA effect (“I built it, so I love it.”)
- Endowment effect (“I own it, so I overvalue it.”)
- Both show that people don’t value things purely by objective quality, but by ownership, effort and identity.
(main source: M. I. Norton et al, 2012)