Tag Archives: loss aversion

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Loss Aversion and the Crackdown 2 Demo

One of the first articles I wrote for this site was about how to use loss aversion to get people to buy Xbox Live Arcade or Playstation Network games. The idea was that during the demo for the game you award people achievements or trophies, then threaten to take them away unless they buy the full game. I speculated that this would result in increased sales because of how people hate to lose something once they have it and simply owning something can inflate how much we value it.

Well, the folks at Microsoft and/or Ruffian games seem to be thinking along the same lines ((If not reading this site –HI GUYS! SEND ME CRACKDOWN 2 SCHWAG, PLZ!)) because upon downloading and firing up last week’s Crackdown 2 demo I saw this screen:

Crackdown 2

For the vision impaired among you, the message conveyed is that the demo allows you to earn achievements that will automagically transfer over when you buy and play the full game. Sure enough, I futzed around with the demo and earned an achievement. Upon exiting, I got this message:

Crackdown 2

I’d be fascinated to see what this does to Crackdown 2’s sales numbers and how many people actually end up shuffling achievements over from the demo. It’s a great idea regardless, but it’s worth noting that it’s not quite what I had in mind in my earlier article. What I thought would be most effective was actually giving the person the achievement and associated gamer points so that they show up everywhere you normally see them, then taking them away if the person exited the demo without buying. What Ruffian did was just say “you earned these in the demo, we’ll give them to you in the game, too.” It’s not quite the same thing, because it doesn’t trigger the idea that you’re going to lose something unless you act.

Maybe there are logistical reasons why this can’t be done in a demo or maybe it would be in violation of some “Don’t be too awesome” rule in Microsoft’s certification process. I don’t know. But I do think that Ruffian could have gotten almost there if they had simply changed the wording they used on the screen above to something like this:

Well done! You have unlocked the following achievements and earned the gamerscore points that go with them. They are waiting to be added to your account once you purchase the full version of Crackdown 2. If you don’t, these achievements will be lost forever. Don’t let that happen, Agent!

I bet that would have worked out a lot better, given how it casts the achievements as a potential loss rather than a gain, and we react much more strongly to losses than gains. What about you? Are you more likely to buy the game because you’ll get to keep your achievements?

It’s also worth noting that the one thing I really hated about the demo was the timer that forced you to restart (with a fresh game and a wimpy Agent) after just 30 minutes of play. Again, I wrote before about how people –especially Westerners– hate the idea of being on a meter and experiencing their service or product as a series of little losses. Of course, the Crackdown 2 demo doesn’t perfectly fit the bill here since you’re not paying for it, but the human brain isn’t always rational and I bet that my distaste for the timer is partially due to the flat rate bias.

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APB: All Points Bulletin or Aggregated Payment Bias? Both.

Back in April of this year, Realtime Worlds announced the pricing model for its soon to be released MMO, All Points Bulletin, or “APB” as the cool kids say. A lot of people were looking forward to the futuristic cops vs. robbers game, but the announcement about the pricing elicited jeers from a lot of players. Here’s how the press release at the time broke it down: 1

  • Buy the game for the MSRP of $50
  • Play 50 hours for “free.”
  • Buy additional game time using one of two options:
    • $6.99 for 20 hours OR
    • $9.99 for unlimited hours during the next 30 days 2

Upon hearing this, the nerd rage was palpable on some forums. For sure, this was partially over the fact that APB was to have any monthly fee AT ALL, despite that being par for the MMO course. But there seemed to be two other targets of the virtual hand wringing. First, the play time included with the retail product was doled out in hours (50 of them, to be precise) rather than the traditional 30 days of unlimited play. Second, the $6.99 for 20 hours of game time seemed a bitter pill to swallow, apparently because people didn’t want to pay by the hour. People seemed to willfully ignore the fact that the game DOES include traditional 30 days of unlimited play for one flat rate option, though. 3

APB Screen

A typical fan reaction to APB's metered payment plan.

Now, I’m actually not 100% sure as of the time of this writing what APB’s pricing models will look like when the game launches. I can’t find anything on the official site, and Realtime World’s designer Dave Jones recently told GamePro magazine said that “gamers won’t have to commit to any kind of monthly subscription fee or utilize a traditional microtransaction system.” I’m not sure what that means, but regardless I think it’s still interesting to focus on people’s reaction to that initial press release in May. Why were they so turned off by the pay by the hour options?

As it sometimes turns out, psychology holds the answer. But let’s get there by way of a discussion about cell phones.

Phones and MMOs

Earlier this year I needed a new cell phone but my wife forced me to admit that I didn’t really need anything fancy. So I went shopping and, being a completely rational decision maker, I selected one of those cheap, pay-as-you-go phones where you buy prepaid minutes. The plan I selected essentially worked out like this:

  1. Buy the phone for the MSRP of $50
  2. Get $35 worth of air time included for “free.”
  3. Pay $0.10 per minute for all calls, $0.20 per text message
  4. Buy additional air time as needed

Does that look familiar? It’s not too far off from APB’s “$6.99 per 20 hours” option, but more on that in a minute.

I could have easily gone for a $60 a month plan that let me spend unlimited hours on the phone, only taking breaks to send unlimited text messages. Or I could have sought out a plan that gave me hundreds of minutes per month, which equates practically unlimited minutes for my purposes. And not only would I have had plenty of company, many of us would probably have been overpaying. A 2009 article in the LA Times 4 reported on a study showing that the average user was paying over $3.00 a minute when you considered how much they paid and how many of their plan’s minutes they actually used. But not me! Bravo! Hooray my precious rationality!

Only it still doesn’t feel right. Because I know that every time I flip that thing open to make a call I have to pay $.10 a minute I’m actually loathe to use the phone. I keep calls as short as possible, I groan when people ask me to text them, and when I’m traveling I’ll actually stalk my wife on Facebook until she comes online so I can ask her to call me on her phone.

A Bias for Flat Rates

The reason for my discomfort is something called “the flat rate bias.” Generally, people like flat rates and don’t like being on a meter. 5 But why does the flat rate bias exist? Well, as is often the case with psychology, it’s turtles all the way down 6 because that’s just how people are.

A bit of work by psychologists Daniel Kahneman and Amos Tversky known as “prospect theory” does a pretty good job of taking us down ONE turtle, though. One thing that Kahneman and Tversky found was a “law of diminishing sensitivity.” Basically, this means that the amount we wince at any one reasonable losses eventually flattens out. If you graphed it for a random person, it may look something like this:

Diminishing Sensitivity

Figure 1: Artist's rendition of diminishing sensitivity to losses. Actual curves may vary by person and situation.

The idea is that our comparative displeasure at different losses ramps up quickly but then levels off. This is known as “diminishing sensitivity” 7 So, for example, we experience a bigger jump in aversion between a loss of $5 and a loss of $10 than we experience between losses of $1,005 and $1,010. It’s related to the reason why we’ll feel great about saving $.30 on a tube of toothpaste, but probably won’t bother to drive across the street in order to save $3 –ten times as much!– on a flat screen TV. 8

One implication of diminishing sensitivity is that we experience greater subjective pain from multiple losses than we do to one big loss of equal value. Answer honestly: implications for your insurance aside, would you be more pissed about three $30 parking tickets over three days or one $90 ticket? Researchers have posed exactly that kind of question, and found that people generally prefer the one big loss over multiple little ones. Why? Because of diminishing sensitivity to losses:

  • Pain of $30 loss = 100 “pain points”
  • Pain of $90 loss = 250 “pain points”
  • 100 X 3 = 300
  • 300 > 250

This is the same reason people buy unlimited or excessive minutes on their cell phone plans. We’d rather have one big cut that seems less painful overall than endure a thousand (or 900 + unlimited mobile to mobile) cuts as the minutes fall away one by one. As a side note, it’s also the reason that rent-by-mail services like GameFly are so appealing relative to renting games one at a time. It’s preferable to sweep all our losses into one big, monthly pile and feel like we have “unlimited” rentals for that price than it would be to rent one game at a time by the day or even by the week. Ditto for Netflix and DVDs. Yet how many of us have let games or DVDs sit around for days or weeks before getting to them? Personally, I know that by my calculations renting “The Hangover” from Netflix just cost me over $11 because I held on to it for 5 weeks before finally watching it last night. Not exactly a great deal.

Flat Rate Bias and APB Revisited

So, armed now with this information about the flat rate bias and diminishing sensitivity, let’s circle back to one of the APB pricing described in that April press release, particularly that “$6.99 for 20 hours” option. My guess is that most people won’t go that route because of the flat rate bias. It’ll just be too painful to feel every individual hour pass away and think that it’s another one your prepaid hours gone forever. In contrast, people who paid just a little more can feel comparatively less pain because they experience just one loss instead of a parade of many smaller losses that feel like they add up to more.

The funny thing is, though, that like those people paying over $3.00 a minute for their cell phone calls and me with my rented copy of “The Hangover,” there will be some number of APB players who OVER pay by selecting the $9.99/month, unlimited hours plan. Because they play fewer than 20 hours in a month but think it’s worth it not to have to feel like they’re “wasting” limited minutes all the time.

In actuality, Realtime World should probably be commended for giving its players the option to save money with a metered plan, especially since it’s in their financial interest to take advantage of the flat rate bias and encourage those people to over pay. Yet they’re not. I asked MMO game designer Nik Davidson of The Amazing Society what he thought, since he had presented a pretty great talk at this year’s Login conference, in part about this very topic. ” I think what they’re doing is brilliant,” Nik said. “People love having options. Being able to choose between two ways of paying and feeling good about the choice they made makes it much more likely that they’ll make a choice at all. I think a relatively small minority of their users will choose the rated plan, but simply having the rated plan will encourage more people overall to play and pay.”

I couldn’t agree more. Now, if you’ll excuse me, I have to go psych myself up to add $20 to my prepaid cell phone balance.

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Framing and World of Warcraft’s Rest System

One of my favorite things about human psychology is how a punishment can be turned into a reward just by changing the way it’s framed. A few years ago a friend of mine was serving on the board for a large conference and negotiating a contract with the hotel where the event would take place. ((Hi Steve! I know you read this!)) Part of the contract dealt with giving hotel room discounts to a limited number of attendees, but they were first come first served, after which the room price would go up. My friend wrestled with how to present this to attendees, grumbling about how he was having to tell people he was punishing them by raising the prices if they made last minute plans to attend the conference.

“Dude,” I said, ’cause I really do say things like that, “It’s not a penalty for late registration, it’s a reward for people who register early.” And with that, the wording on the conference registration changed from “late registration fee” to “early registration discount.” And nothing else changed, except that people probably thought it was more fair.

WoW Framing

Word of Warcraft framing. Get it? Eh? Eh? Eh, yeah, you're right, it's not that funny.

In a recent episode of the nifty Idle Thumbs podblast ((Wizard, bird noise, horse bag, etc.)) Gamasutra’s Chris Remo articulated another great example of this kind of simple framing in how World of Warcraft’s “rest bonus” system came about:

In World of Warcraft what they did when they first designed the game was they had an experience system that would, over time, lower the amount of experience you got because [Blizzard] wanted to encourage people to play for like two hours at a time instead of twelve hours at a time. So the longer you played you’d get this experience degradation and then it would bottom out and at that point it would be a fixed rate of experience. And people just hated it.

And so they went back and [Blizzard's Rob Pardo] was like allright, basically what we did was we made everything in the game take twice as much experience to achieve as before and then we flipped it. So actually what happens is you start getting 200% experience and eventually it goes back down to 100%. So that effectively now how they spin it is that if you log out for a while you get this 200% boost when you log back in! And then over time it goes away and you just get regular 100% experience. It’s EXACTLY the same as it was before, except NOW everyone is like “Fuck yeah, Blizzard, this is exactly what I want!”

So, in other words, people hated the system when it was presented as a penalty for playing too long at a stretch, but they loved it when it was framed as a reward for taking a break. Even though the results were exactly the same. Such is the magic of framing.

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Conan the Loss Averse Barbarian

I wrote just the other day about how loss aversion could be used to increase conversion rates on trial games. You can read that article for more details and a neat experiment illustrating the effect, but the gist of it is that people hate to lose things more than they like to gain them. Losing $10 is more painful than gaining $10 is pleasurable because “losses loom larger than gains.”

I kind of hate to dip back into the loss aversion well so soon, but Funcom recently provided such a textbook example that I couldn’t resist. Many players who had unsubscribed from the Age of Conan massively multiplayer game got an e-mail from the publisher stating, in part:

Dear customer,

Thank you for playing Age of Conan.

As part of our maintenance your account is now flagged to have your characters below level 20 deleted as part of maintenance. Please re-activate your account now to ensure that your characters progress and names stay intact.

In other words, “come back or your low level alt ((not to mention your bank and your mule characters)) gets taken out back and shot.”

conan

A Funcom database administrator gets ready to subject your character to "maintenance."

I’d be fascinated to see what this did to Age of Conan’s resubscription rate. If I were in charge of these things at Funcom, I would have randomly separated that mailing list into two groups and sent the above e-mail to the first half. The second half would have gotten something along the lines of:

Dear customer,

Thank you for playing Age of Conan.

As part of our maintenance your account is now flagged to have your characters below level 20 saved as part of maintenance if you resubscribe. Please re-activate your account now to ensure that your characters progress and names stay intact.

And then I would have looked at the differences in resubscription rates between those whose message was phrased in terms of losing their character and those whose message talked about saving it. Which of those two messages would you, as a MMO player, respond to more strongly? My guess would be the former, especially if you weren’t the handsome and well educated person you are on account of reading about loss aversion here.

Note: A combination of this and my previous post on loss aversion appeared on GameSetWatch. Look for more of my writing to appear there in the future!

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Loss Aversion, Achievements, and Trial Conversions

How could publishers get way more people to buy an Xbox Live Arcade or Playstation Network game after trying the trial version? Let me glue on my goatee and practice my maniacal laugh a few times and then I’ll tell you my idea.

But first, let me ask you a couple of hypothetical questions made famous in certain circles by Amos Tversky and Daniel Kahneman: ((Tversky, A. & Kahneman, D. (1981). The Framing of Decisions and the Psychology of Choice. Science, 211, 453-458.))

Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequences of the programs are as follows:

If Program A is adopted, 200 people will be saved.

If Program B is adopted, there is 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved.

Which of the two programs would you favor?

Which would you pick? The researchers found that most people chose Program A: 72% versus the 28% who chose B.

So then the researchers asked the following version of the same question:

If Program C is adopted 400 people will die.

If Program D is adopted there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die.

Which of the two programs would you favor?

Which would you pick? Most of the experimental subjects picked Program D by a wide margin — 78% versus the 22% for Program C. The thing is, both sets of choices are identical. Look closely. Programs A and C both result in 400 people dying and 200 living. Programs B and D both have a 1/3 chance of saving everyone and a 2/3 chance of killing everyone. The ONLY difference is that Programs A and B are phrased in terms of lives saved and Programs C and D are described in terms of lives lost.

Tversky and Kahnaman said this points to “loss aversion,” which is one my favorite kinks in the human brain. In short, loss aversion is our willingness to go to great lengths to avoid losses –much farther than we’ll go to get an equivalent gain. In other words, losing $10 is more painful than gaining $10 is pleasurable.

Consider another quick question and suppose that a company were offering two subscription plans for an online MMORPG.

  • Option A gives you a $5 credit
  • Option B lets you avoid a $5 monthly surcharge

Assuming both options were otherwise identical, which do you think would be more popular? In all likelihood it would be Option B, since people prefer not losing $5 to gaining a $5 discount. This despite the fact that the monthly costs would be identical. This is also one of the reasons you’ll more often see “$10 late registration fee” advertised instead of “$10 discount for early registrations” for events where the organizers want you to register early.

So what does this have to do with getting people to buy a Xbox Live Arcade or Playstation Network game after they play the trial version? Right now, it’s not uncommon for such trials to pop up a message saying something to the effect of “You would have just gotten an achievement/trophy just now! Buy the full game to get it!”

And that’s pretty good. Pretty sneaky. Pretty psychological. Because we obviously like getting things we value. ((The “I don’t care about Gamerscore” folks can just put a cork in it, here)) But the phenomenon of loss aversion suggests a way to be better, more sneaky, more psychological. Instead of saying that you will get the achievement or trophy if you buy the game, actually give it to them and then say you’re going to take it away if they DON’T buy the game. And I mean really give it to them –have it show up in their gamer score and on their achievement/trophy list. Just take it away if they exit the trial version of the game without buying the full thing, and make sure they know it.

So, to all the game developers/publishers out there, I guarantee that your conversion rate will go up, because while people like the promise of getting something, they hate the promise of losing it way more. Just don’t tell the gamers that you got the idea from me.