Wednesday, June 30, 2010

In Praise of Irrationality

As anyone who’s ever cheated on a diet, bought an overpriced meal, or voted in an election can tell you, most of our decisions aren’t rational; they’re emotional.

Dan Ariely, a behavioral economist at Duke University, knows this all too well. His new book The Upside of Irrationality, takes a close look at the many factors that motivate irrational decisions.

The book is chock full of eye-opening insights into human behavior. Perhaps my favorite is something called “The IKEA Effect.” According to this idea, people overvalue the things that they helped to make. That IKEA coffee table you put together might not be worth as much as fine-crafted furniture, but it’s just as valuable to you.

According to Ariely, when instant cake mix was introduced in the 1950s, it wasn’t a popular product. Many housewives found the cooking process to be too easy. It wasn’t until Pillsbury began selling mix that required the home cook to add fresh eggs, milk, and oil that sales took off. This is truly irrational. Why would a consumer prefer a product that made baking more labor-intensive?

I realized when I read this that, with the IKEA Effect, Ariely has struck upon one of the key ideas driving our Participation Economy. Enabling consumers to participate in the creation of a product – whether it be sweetening their own drink at Starbucks or designing their own pair of Converse sneakers – is a way of making that product matter on an emotional level.

Only when a product engages a consumer and becomes a valuable part of that person’s life can it inspire loyalty beyond reason. IKEA may not be the furniture store that provides the best furniture for the lowest price, but it has become the world’s largest home furniture retailer nonetheless.

Like any successful company in the Participation Economy, IKEA’s secret is that it has found a way to forge an emotional connection with its customers.