The ikea effect of ideas Flashcards
What is the ikea effect of ideas?
how people tend to value an object more if they make (or assemble) it themselves, hence willing to pay for it.
In marketing how can marketers use the ikea effect of ideas to increase revenue?
Presumption ( involving customers in production e.g. designing mugs, so it increases their WTP, thus you can set a higher WTP.
What is the paper relating to this topic?
The impact of idea generation and potential appropriation on Entrepreneurship: An experimental study. H&L(2018)
What is the paper The impact of idea generation and potential appropriation on Entrepreneurship: An experimental study. H&L(2018) about?
People get attached to their own ideas and dismissive of other ideas.
H&L show that people are overconfident and more likely to invest in their own idea ( especially with appropriation) and underconfident and less likely to invest in other ideas.
The effects are even larger for people with entrepreneurial experiences. ( we saw in the entrepreneurship and optimism paper the value of SE meant)
In the H&L(2018) paper they also discuss takeover anxiety? which is what? and what does it mean for investment.
The threat of another investor who can appropriate a declined investment opportunity,
so this takeover anxiety increases the likelihood to invest in your idea even if you have potential doubts about it.
Why might takeover threat increase investment.
you might have a salience of regret if it turns out to be a success.
Lets look at the main experiment
-Some participants deliver a business idea.
-These ideas are randomly put in groups of 6 and a judge ranks them from 1-6.
- All participants fill out a questionnaire on experience with and interest in entrepreneurship
- All participants get $12, to then use to invest in something
What happens next?
6 ideas were randomly selected and out of these 6 ideas that were randomly selected, we generate 3 conditions OWN OTH and NOT,
OWN - the 2 ideas randomly selected from the six are given to the people who came up with the idea.
OTH - the 2 same two ideas are given to people who developed an idea but not these ideas.
NOT - the same 2 ideas are given to people who have not developed an idea.
So are all given an idea to invest in
It was a 3 x 2 factorial design where 1 factor was idea generation status ( OWN OTH and NOT) and factor 2 was the presence of a second person who may appropriate the idea if participant does not invest so APPR vesus NO- APPR. ( you find out what happens with second investor straight away if you don’t invest|)
Investors are also told about the rank of the payoff the idea they invested in or not, which is what?
Dependent variable : Investment in idea.
What we need to know now is how much people are willing to pay for investment? Obvi if you think the idea you got given was ranked one, then you will pay more for it, but if your think your idea is shit, then you are not willing to pay a lot because its likely to be ranked shite. How do we find out peoples WTP?
We use the modified BDM to elicit valuation of investment opportunity.
What is the dependent(effect) , Independent ( cause) , control variables and cognitive/emotion variables for this main experiment?
Remember if you guessed the judges rank you get an extra dollar? how did we measure over confidence?
judge rank - your rank ( overconfidence is positive)
What are some predicitions that we expect?
So on Y axis we have WTP for investment in the idea they got?
Interpret it ?
1) The people presented with their own ideas had higher WTP for their own idea.
2) WTP for OTH is the lowest
3) We can also see there is an increase in WTP if you are in the appropriation condition.
Now we are going to analyse table 2 which is similar to the previous flashcard. Again this is WTP for the investment
First of all why do we have different models?
Interpret results too?
1) Different independent variables are used ( e.g. model 1 there is no independent variables used in comparison to model 3 and 4, which is still significant, so realists are robust.
2) Rank guess is going to have a significant affect on WTP because if its not i wont be willing to pay anything. ( its only negative as lower rank, means higher WTP).
Model 3 uses judges rank which make no difference to WTP for OWN for example. Not surprising as participants don’t know judges rank.
( HARD) In table 2, Model (2) in H&L, what is the point of model 2 why is there a negative coefficient on APPR? What is the interpretation of this coefficient?
What is the effect of Appropriation?
What is the effect of Appropriation for OTH? ( think of it as taking the derartive)
What is the effect of appropriation of OWN?
1) as you can see in model 1, the effect of appropriate is significant and positive, so if we look at subjects together then appropriation increases WTP. Model 2 to see whether the appropriation effect is different for the different groups. ( NOT group )
2) Appropriation is not significant here here as we are looking at smaller number of observations, as we look at each of the groups separately. The effect of apporation for NOT is -0.1 ( not significant, it just lowers WTP)
3) -0.1 (NOT) + 1.32 x OWN + 0.98 x OWN
4) -0.1 + 1.32
5) 0.98-0.1
so by including appropriation effects allow for different effects of appropriation.
BUT AS IT IS NOT SIGNFICIANT WE CANNOT CONCLUDE A SIGNIFICANT EFFECT FOR THE 3 GROUPS.
We included passion as part of variables in the regression of WTP, what do we see?
Those presented with own ideas, had a greater level of passion in comparison to others and again with appropriation this increases the level of passion.
We also included regret as part of variables in the regression of WTP, what do we see? What could be explanation of results?
Regret is not significant in appropriation face, hence it is not the main driver of aversion to appropriation by others in our experiment. Countering takeover threat.
Although this may be because refret wasm assured without any anchor points, hence measure may of not been defined precisely.
We also included overconfidence as part of variables in the regression of WTP, what do we see?
Remember overconfidence was a measure of judge rank - your rank ( positive for overconfidence)?
The difference is largest again for the ones presented with OWN idea and positive. There is underconfidence for OTH
What about overconfidence for those who had entrepreneurial experience?
They are more overconfident about their own idea and more underconfident than other idea
Lets look at WTP for those with experience and those who do not.
Those with entrepreneur experience are have a HIgher WTP for own idea but lower WTP for other idea.
4) In Table 4 in Hooshangi &Loewenstein (2018), OWN is significant in Model 0. Why is it not significant in Model 1 and Model 4)?
In model 0 we didn’t include passion, overconfidence and regret in the model 0, the base model, hence we all we know is that an idea generated by yourself correlates to have a high willingness to pay. Whereas in model 1 the new variables included when controlling these variables makes the effect of OWN reduced as people are more willing to pay for OWN idea because e.g passion, which is significant, thus the new variables are reflecting the difference. Also in model 4 overconfidence and passion mediate the effects of OWN being significant on its own.
Now lets look at the follow up experiment, what was the purpose of the experiment ? ( focusing on the OTH condition)
We have 2 groups, 1 group generates an idea and the other group doesn’t generate an idea.
No one is going to be asked to evaluate their own idea but what they are asked is the following either they are given a specific idea generated by someone else or are they willing to invest in a random idea.
What interesting finding do we find?
NOW QUITE A LOT HAD ENTREPRENUER EXPERIENCE E..G AVERAGE 5 YEARS.
Overconfidence is measured by guess- rating ( if you guess 8 but judge gives you 6, then your overconfident by 2)
Those who generated an idea themselves evaluate others’ unknown ideas more favourably and others known ideas less favourably than those who had not generated an idea.
For the follow up experiment lets look at the results?
Those who didn’t develop an idea have similar investment levels for an idea they can see vs idea they cannot see.
This is not true for the ones that generated an idea (OTH). They have about the same level of investment as the NOT for Unknown idea but investment for the idea that they could see and evaluate is significantly lower in comparison to random idea and the NOT group.
Before we investigate why we see such a discrepancy in OTH in the follow up experiment, lets look at overconfidence levels for OTH and NOT for known and Unknown idea. Interpret it.
Those who don’t generate an idea pretty much get close to judge ratings, like they evaluate the ideas more rationally.
For whose who had generated an idea ( OTH) they are overconfident about the random idea higher than judges and rate the idea they are represented with lower than the judge.
How does H&L paper apply to academia?
