Week02: The Psychology of Money
2.1 Opportunity Cost
Shadow Values: Every time we spend time or money on anything, we lose the ability to spend that time or money on anything else. Because “anything else” is such a vast set of alternatives, our brains consider only a small subset of those alternatives with each decision we make. This “cheating” can lead to irrational decision making. For instance, participants in one study showed a preference for a superior quality stereo that costed $300 more than an alternative. However the inferior stereo was preferred by participants after it was bundled with $300 in music and priced the same as the better quality stereo. One explanation for this result is that participants were not considering all of the possible uses for the $300 savings provided by the inferior stereo in the first offer.
In-Mind Purchases: Some games present the management of scarce resources and opportunity costs as a central challenge. In games like Le Harve and Star Craft 2, player success depends heavily on how well players appraise the changing values and long term opportunity costs of their actions. Helping players organize and remain cognizant of these trade-offs is especially important in such games. Other games treat purchases as rewards. In a game like Zelda, you can always slay a few more monsters to earn some extra money (Rupees), and it’s generally in your best interest to buy all of the most expensive stuff you can afford. In these games, incentives can become more salient by clearing conveying their specific benefits. As an example, instead of promising a mystic artifact or a chest of gold, promise a sword that does twice the damage of the player’s current sword.
Relatively More: We touched on the brain’s preference for relative over absolute comparisons while discussing decoy effects and the importance of establishing baselines in section 1.4. But even with good baselines in place, we are likely to compare differences in terms of relative percentages over absolute differences. For instance, consider how much influence a $5 coupon would have over your decision to shop at one store instead of another. A $5 coupon for a $7 sandwich is likely to persuade us more than a $5 coupon for a $2000 television. This is because of the difference in relative savings (71% versus 0.25%), since there was no difference in absolute savings ($5 versus $5).
Delusions of Progress: I believe this is a lesson that many designers are in tune with. Computer role playing games (among others) commonly use exponential curves to ramp up the amount of damage a player deals, the amount of gold they collect, and the benefits of the equipment they find or purchase. Regularly doubling these kinds of stats provides players with a much greater sense of progress than the smaller feeling increments of a linear growth curve. The deck building card game Ascension utilizes another trick to provide a similar sense of growth. This game includes many cards that are two to three times as powerful as others. But when played within a hand of more mediocre cards, one of these doubly powerful cards really only represents a 20% increase in the power of your entire hand.
2.3 The Pain of Paying
Where it Hurts: The loss of money when making a payment can be so upsetting that it colors our opinions of the goods and services we purchase. What’s interesting is that the intensity of this pain can be manipulated by the proximity, frequency, and forms of the payments that we make. For instance, consider paying for a vacation on a cruise ship. Would you prefer to 1) pay in advance, or upon returning, 2) pay in one lump sum, or make daily payments, and 3) pay with a credit card, or with cash. The first option in each case should result in the least painful experience and thereby help you enjoy your vacation more fully.
For Better or Worse: Presumably the purchase options in a game are there to make the game more fun, and should be made as painless as possible. One possible exception to this rule is that some purchasable goods may be so powerful, that you want to discourage their use. In addition to raising the price of these goods, you can consider changing how they are paid for. In worker placement games like Stone Age, there is a per-round food cost associated with each member of tribe, instead of a one time up-front cost to acquiring them. In Fallout 3, there are many disposable objects that either degrade with use or permit only a single use. These objects need to be acquired frequently but can usually be traded for, which is less painful than spending your valuable money (caps) on them.
2.4 Mental Accounting
Money Buckets: Mental accounting is another trick that our brains utilize to manage the otherwise overwhelming number of alternatives involved in making purchase decisions. The idea is that once we allocate or budget money for a particular use, we have a hard time thinking about using that money for any other purpose. The only game experiences I can relate to this, include complex simulation-based games. In the indie computer game Democracy 2you govern a nation by selectively implementing policy changes. For instance your country might have a pollution problem, so you increase a gas tax with the intention of later spending that revenue on green technology research. Imagine that this tax significantly improves air quality on its own, but has the side effect of hurting employment. Investing in public transportation or reducing the existing tax rate might become more beneficial investments. But we’re often stubborn about spending money intended for a specific use on anything else.
2.5 Fairness and Reciprocity
What you Pay For: This lesson includes two biases in our sense of fairness while purchasing goods and services. First, when a service takes a long time to render, we’re more likely to attribute that time to the difficulty of the service than the incompetence of the provider. This can lead us to feeling justified in paying more money for what may actually be an inferior service, or vise versa. A similar phenomenon occurs when purchasing goods. We’re more likely to associate the value of a good with its apparent marginal cost, than any one-time start-up costs. This might explain why some people are frustrated with the pricing of many ebooks in relation to their paper counterparts. In both of these biases, we are utilizing one source of available information as a substitute for another independent source of missing (or at least more speculative) information.
Cost of Investment: Fairness in games often reduces down to how each player’s chance of winning is influenced by their skill in playing. So when random events inordinately advantage or disadvantage a player, this is often seen as unfair. The middle ground case is when games present random threats or opportunities that only effect properly prepared players. Such players may be lauded for their skill in preparation, or considered the benefactors of good luck and fortune. From the research, it seems like one influence on this determination might be the cost of their preparation. Another factor might be the likelihood of the particular threat or opportunity’s occurrence.
2.6 Loss Aversion and The Endowment Effect
Ownership Effects: When we acquire ownership of an object, we quickly familiarize ourselves with the advantages of that new ownership. We then adjust our baselines for happiness to include all of those new-found benefits. An interesting consequence is that we commonly over-value the objects in our possession. This also results in loss aversion, because the loss of our over-valued possessions is more painful than the acquisition of these objects was pleasureful.
Thematic Consequence: An argument could be made that the trade-off between rewards and punishments occurs in every game. Games commonly involve earning points of some kind(s), but could just as easily be about avoiding the loss of points. Mathematically, you simply multiply the points you are earning by negative one and they become losses. But the experience of trying to avoid losing your possessions is often very different from that of amassing wealth and power throughout the course of a game.
2.7 Market and Social Norms
Business or Pleasure: When fiscal and social economies interact with each other, the result is not always complimentary. For instance, an offer of a few dollars is likely to make your friends less willing to help you move heavy furniture, than if they were just doing it to be nice. The common practice of removing price tags from gifts is another example of where there can be friction between these two economies.
Play Nice: Some competitive games explicitly encourage players to work together. For instance, you can trade resource cards with your opponents in Settlers of Catan. Mutually beneficial trades can be negotiated in this game, but a competitive player should only accept such trades from players they are beating (or will be after their trades). Once this kind of exchange is made, there’s rarely any expectation of continued cooperation since each player is presumably acting in their own interest of winning. However in a game like Risk, players can offer each other social “favors” in the form of promising not to attack along a weakened border. This gesture is beyond the game’s rules, and is probably tied to an expectation of later reciprocation. The line between tactical maneuvers and social offerings of this kind is blurry at best. This makes it critical to observe a wide variety of players and groups of players experience your game through playtesting.
2.8 The Price of FREE
Favorite Price: It’s no secret that people love getting stuff for FREE. We’ve probably all stood in ridiculously long lines, filled out complicated surveys and rebate forms, and payed exorbitant handling fees for the satisfaction of getting something for “nothing”. So I doubt many people are surprised when they learn that this magical price of zero occasionally solicits irrational behavior.
Pay to Play: The economies within games are a fiction that helps explain rule sets, and incentivize certain behaviors. As a game designer, you can add cost to or remove cost from every possible action. In the game Sim City for instance, what if players could build roads for free? Or what if roads carried with them a recurring maintenance fee? Presumably both of these changes should impact how players layout their virtual cities. Monopoly‘s $200 for passing GO is another interesting case. Couldn’t the costs of real estate and other fees be changed so players typically spend $200 less per trip around the board? Or does this fiction of receiving a free $200 make the game more enjoyable?
The Bad News: One problem with micro-payments is that they amplify the pain of paying by requiring us to make many purchase decisions instead of just a few. This can lead to more frugal spending, and less enjoyment of the items purchased. Within games, purchases are just one of many kinds of player decisions. A big part of the game designer’s job is to strike a balance between the number and frequency of decisions a player must make, the difficulty of making those decisions, and how they contribute to the larger experience of the game. One game design lesson from this research is that many smaller decisions may add up to more than the sum of their parts in terms of the burden that they place on players.
The Good News: There are techniques for mitigating the pain of paying. Charging upfront for a subscription forces payers to allocate money to be spent in a particular way (ie. mental accounting). This helps reduce the number of alternate uses for this money the payer must consider as opportunity costs. Providing a limited number of price points in another way that sellers can make micro-purchase decisions easier. This allows buyers to focus on their preferences while purchasing, instead of having to weigh their preferences against many small differences in price. I suspect that similar techniques could be applied in game design. However game designers have many more tools to help ease their players’ burdens. The most blunt of these tools might be removing the need for making any particular decision all together.
[Thanks for reading. Please, let me know what you think about this article, if you have questions, and whether you'd like to see more of the material from this class covered in the same way.]