When we put a lot of energy into a task, we tend to overvalue the outcome. As a result, we become attached to things that we invest effort in creating. It’s a very dangerous behavioural bias because it lets us fool ourselves.
In July 1999, I entered my engineering college campus for the first time with a lot of excitement and a bit of trepidation too. I was excited about my new-found freedom. At the same time, I was scared to death about the college ragging. For those who don’t know, ragging in India is a damaging form of interaction of the seniors in college or school with the juniors, new entrants or first years. I had heard nasty ragging stories from my seniors.
Fortunately, the college administration had recently adopted very strict policies to stop ragging. All the freshers were put in a different hostel so there was no direct interaction among first year and senior year students. The strange thing about ragging is that once the new guy goes through it, he experiences a change of heart and starts feeling that ragging is justified. Obviously, the senior students didn’t like the idea of banning the ragging. When I asked some of my seniors about their rationale for ragging, they explained that ragging was a great way for new students to open up to seniors. They argued that it increased the solidarity in the student community.
Ragging isn’t something unique in Indian colleges. In western countries, it’s known as ‘hazing’ and practiced in form of initiation rites for student fraternities. Wikipedia defines hazing as the practice of rituals, challenges, and other activities involving harassment, abuse or humiliation used as a way of initiating a person into a group including a new fraternity, sorority, team, or club.
A few years back, I found remarkable insights about hazing in a book called Influence by Robert Cialdini. Cialdini’s insights come from a 1959 study by Aronson and Mills who observed that “persons who go through a great deal of trouble or pain to attain something tend to value it more highly than persons who attain the same thing with a minimum effort.” That gives important clue about why gangs, secret societies, college fraternities etc. resort to such painful and degrading initiation rites.
If I must work hard to achieve something, I will afterwards find it more attractive. Harder the initiation rites, stronger the newcomer’s commitment to the group. This psychological phenomenon is known as Effort Justification.
To me, ragging always looked like an excuse to avenge for the things that were done to someone. But maybe it’s because I never had to go through it. Effort justification says that I would have become a proponent of ragging if I had to go through it.
Labour Begets Love
Effort justification is people’s tendency to attribute a greater value (greater than the objective value) to an outcome they had to put effort into acquiring or achieving. In other words, the more work you put into something, the more ownership you begin to feel for it.
Here’s an interesting business case study that validates the effort justification hypothesis. In the 1950s, America was experiencing a wave of rapid innovation in products that simplified life and manual labour for the common man. Betty Crocker was a leading brand that sold instant cake mixes. The instant cake mix was a brilliant innovation to reduce the effort for housewives. All they needed to do was add water before putting in the oven in order to make a cake. Strangely, the new recipe was met with unexpected resistance from housewives. The reason? The mixes made cooking too easy. It gave ladies a feeling of not working enough to show their love and care for their family. So, what did Betty Crocker do? It changed the recipe and made the process of cake making a ‘bit more effortful’. The new recipe required the consumer to add eggs as well. Voila! The mixes started flying off the shelves. It turned out that the housewives liked the new cake mixes better, because the slightly ‘complicated’ process (of adding an egg) made them feel better about their baking abilities. They could proudly say that they were actually ‘making the cake’. Labour truly begets love.
Rolf Dobelli, in his book The Art of Thinking Clearly, writes –
MBA schools play with effort justification in this way: They work their students day and night without respite, often to the point of exhaustion. Regardless of whether the course work proves useful later on, once the students have the MBAs in the bag, they’ll deem the qualification essential for their careers simply because it demanded so much of them.
I remember one of my friend, who was studying in a very prestigious MBA college in India, told me once, “In MBA, you get time only to choose any two of these three – studies, extra-curricular activities, and sleep.” No wonder, the graduates from these premier business management institutes love flaunting their degrees so much.
Some Assembly Required
IKEA is world’s most successful furniture brand. The Swedish manufacturer has huge stores and biggest selection of innovative furniture designs. One of the ways they reduce their cost is by shipping the furniture in dismantled form. IKEA’s founder once joked – the most expensive thing to ship is air. “We send our products around the world,” he said, “But we would like to avoid shipping air at the same time.” Which means that consumers have to assemble the furniture on their own. So IKEA makes sure that their furniture is designed in such a way that it’s not very difficult for a layman to put together the pieces by following few simple instructions. Brilliant idea, right? But the true brilliance of this strategy lies in the unintended (and positive) consequence of this “assemble yourself” feature. Dan Ariely, the author of Predictably Irrational, writes –
…the more work you put into something, the more ownership you begin to feel for it. Think about the last time you assembled some furniture. Figuring out which piece goes where and which screw fits into which hole boosts the feeling of ownership. In fact, I can say with a fair amount of certainty that pride of ownership is inversely proportional to the ease with “which one assembles the furniture; wires the high-definition television to the surround-sound system; installs software; or gets the baby into the bath, dried, powdered, diapered, and tucked away in the crib. We call this phenomenon the IKEA effect.
The same goes for hand-knitted socks, Dobelli writes, “To throw away a handcrafted pair, even if they are tatty and outdated, is hard to do. Managers who put weeks of hard work into a strategy proposal will be incapable of appraising it objectively. Designers, copywriters, product developers, or any other professionals who brood over their creations are similarly guilty of this.”
The root cause of IKEA effect is cognitive dissonance. Human brain finds it extremely hard to harbour two contradicting thoughts at the same time. So, when we take an action that contradicts our prior beliefs or ideas, it creates stress which is known as cognitive dissonance. If an action creates cognitive dissonance, our mind subconsciously tries to resolve this dissonance by resorting to random reasons for rationalising the action. Effort justification is a special case of cognitive dissonance.
This behavioural bias has obvious implications in investing. Once an investor has spent some time researching a stock i.e., a significant effort has gone into studying the company, reading the annual reports and crunching the numbers, IKEA effect creeps into the decision-making process.
You start falling in love with the stock because it seems to you that the stock pick is your own discovery. Your subconscious tells you, “Having just gone through all of this incredible effort, I really, really love this stock. I will buy it and cherish it forever.”
This reminds me of the days when I first started investing in stock market. Having read about the importance of reading annual reports, I made a promise to myself that I would never buy a stock before reading its annual report. And stuck to my promise. Unfortunately, instead of using the annual reports as a starting point, I used it as an excuse to buy the stock.
This is the reason Warren Buffett has a “too-hard” basket on his desk. And according to him, 90 percent of all the stock ideas that he comes across, land into that “too-hard” basket. He knows that more time he invests looking at a business which is outside his circle of competence, harder it will become to reject the stock idea. “Too-hard” basket is Buffett’s hack for avoiding the trap of effort justification.
Moreover, not buying a stock for which you have spent considerable time researching would mean that all your effort goes down the drain. Isn’t it? Actually no. Whether you invest in a business or not, all the effort that you put into research and analysis never goes waste. It adds to your knowledge base. In investing, everything that you learn accumulates. Like money, knowledge has a tendency to compound.
Exploiting IKEA Effect
According to Charlie Munger, one of the most interesting ways to gain unique insights on a problem is to invert it. So far, we have seen how effort justification can lead to irrational behaviour. But what if we invert the idea and ask, “Is there a way in which we can exploit IKEA effect for individual benefit?”
Well, Dan Ariely has some fascinating insights on how IKEA effect can be used as a hack to make our life more enjoyable. He writes –
The simple economic model of labor states that we are like rats in a maze; any effort we put into doing something removes us from our comfort zone, creating undesirable effort, frustration, and stress. If we buy into this model, it means that our paths to maximize our enjoyment in life should focus on trying to avoid work and increase our immediate relaxation. That’s probably why many people think that the ideal vacation involves lying lazily on an exotic beach and being served mojitos.
Similarly, we think we will not enjoy assembling furniture, so we buy the ready-made version. We want to enjoy movies in surround sound, but we imagine the stress involved in trying to connect a four-speaker stereo system to a television, so we hire somebody else to do it for us. We like sitting in a garden but don’t want to get sweaty and dirty digging up a garden space or mowing the lawn, so we pay a gardener to cut the grass and plant some flowers. We want to enjoy a nice meal, but shopping and cooking are too much trouble, so we eat out or just pop something into the microwave.
Sadly, in surrendering our effort in these activities, we gain relaxation, but we may actually give up a lot of deep enjoyment because, in fact, it’s often effort that ultimately creates long-term satisfaction. Of course, it might be that others can do better wiring work or gardening (in my case, this is certainly true), but you might ask yourself, “How much more will I enjoy my new television/stereo setup/garden/meal after I work on it?” If you suspect you would enjoy it more, maybe those are cases where investing more effort will pay off.
It’s the efforts that make the fruit juicier. If you get everything you want without moving a finger, you may enjoy it for a short while but eventually, you’ll stop deriving any meaningful joy out of it. This reminds me of awonderful story I found on Paulo Coelho’s blog.
As soon as he died, Juan found himself in a gorgeous place, surrounded by all the comfort and beauty he had dreamed of. A fellow dressed in white approached him and said, “You have the right to have whatever you want; any food, pleasure or amusement.” Charmed, Juan did everything he dreamed of doing during his life. After many years of pleasures, he sought the fellow in white and asked, “I have already experienced everything I wanted. Now I need to work in order to feel useful.” “I am sorry,” said the fellow in white, “but that is the only thing I am unable to give you. There is no work here.”
“How terrible,” Juan said annoyed, “I will spend eternity dying of boredom! I’d much rather be in hell!”
The man in white approached him and said in a low voice: “And where do you think you are?
The central idea behind effort justification is that when we put a lot of energy into a task, we tend to overvalue the outcome. Thus, we become attached to things that we invest effort in creating.
It’s a very dangerous behavioural bias because it lets us fool ourselves. For an investor, fooling himself is the last thing that he wants in his decision-making process.
In Behaviouronomics series, our attempt is to introduce you to your lizard brain, the origin of all cognitive biases. The lizard brain is a product of millions of years of evolutions and no matter how hard you try, it’s extremely hard to overcome its power. But knowing about its peculiarities can save you from some dumb decisions especially when the stakes are high.[/show_to] [hide_from accesslevel=’almanack’]
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