University of Mannheim: IKEA effect does not affect the financial markets

The self-painted and decorated chest of drawers may be a bit crooked, and the drawers are also stuck – but it is still the owner’s favorite piece. Why is it? The latest literature shows that consumers value products particularly when they assemble them themselves or have to do something else. But does this principle also apply to finance? The Mannheim economists Prof. Dr. Wladislav Mill, Fabian Gamm and Dr. Fabian Brunner pursued.

Nowadays, online platforms in particular make it possible for investors to put together their preferred funds and stocks individually according to their preferences. In the study, Mill and his colleagues looked at how investors value and trade their own portfolios compared to portfolios put together by professionals. The result of his study: Although investors feel more connected to their specially compiled portfolio, they do not treat it any differently than other financial products. To measure the effect, the authors checked how much money investors would ask to sell their portfolio. It was also relevant for the result whether the portfolios were more likely to be bought or sold. “Our study suggests that the emergence of new investment opportunities per se has no impact on financial markets and that the IKEA effect is not relevant to the economy in this case,” notes Mill. According to the authors of the study, this is mainly due to the fact that general investment behavior does not change.

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