The Psychology of Video Games

Last week at the Electronic Entertainment Expo (or “E3” if you’re in a hurry) the two big stories for console makers were 3D¹ and new motion controllers. As I watched Sony’s press conference where they pitched the Playstation Move² something struck me about the way that they presented the pricing for the product.

Peter Dille, a Senior Vice President at Sony, started the announcement by throwing up a $49.99 price up on the screen behind him. The crowd, which had been worried that the Move and its competitor Kinect on the Xbox 360 would come out in the $150 range, seemed really pleased by this. There was even cheering! That mood tanked, though, when Dille plunged ahead and noted that, uh, actually that was just for ONE part of the thingie. To get the quasi-optional “navigation controller” you’d have to drop another $29.99. You could FEEL the wave of “WTF?” that swept through the theater. Then Dille went on to point out that you’d need to buy a Playstation Eye camera accessories to get the full effect, but that they were bundling it, some sports game, and the Move controller (but not the navigation controller) for $99.99. Here, you can see it in the first 30 seconds of this video:

Those adept at the maths quickly figured out that if you wanted to buy all four things –the Move, the navigation controller, the game, and the Eye camera– you’d be out about $130 give or take a penny or two even with the bundles.

I myself quickly started thinking through Sony’s announcement from a psychology angle, and my first thought was that they had screwed up. I wrote last week about how our preference for all-you-can-eat/play pricing is rooted in the fact that we experience diminishing sensitivity to increases in losses as they go up –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. The thing is, prospect theory³ holds that we have similarly diminishing sensitivity to gains. Look at the graph!

What this means is that we more enjoy getting lots of little things that add up more than we like getting one big lump of thing, even if their objective values are the same. Finding a series of four $5 bills is going to make us more giddy than finding one $20. Or, to put it another way, according to our mental accounting:

$5 + $5 +5 +$5 > $20

That’s just how our emotional brains work.

And it hasn’t gone unnoticed by advertisers and marketers, who have followed its lead to create what I call the famous “But wait! There’s more!” style of pitching your wares. Just look at any late night infomercial for an example. “Order now and you not only get the juicer for $99.99, but you get the a chopper attachment, a recipe book, five pounds of mangoes, and this adorable kitten –all for free!” True masters of this pitch will stretch out the “free” bonus gifts, parceling them out like a trail of candy so that you perceive them as a series of separate additions to the offer instead of one big bundle. This is a more effective sales technique than just saying “You get all this stuff for $99.99″ because it side steps that diminishing sensitivity to gains.

This is, in fact, the boat I thought Sony was missing with the way they did their Move price announcement. It seemed to me that it would have made more sense to come out at a price of $129.99 for the Move, but then systematically and not too quickly note that for that price in addition to the Move controller they’re also going to throw in a navigation controller –valued at $29.99! And a Playstation Eye accessory that currently goes for $39.99! Does that sound like a good deal? But wait! What if we threw in a free game valued at $59.99? OMFG! Dude! All for $129.99? That’s CRAZY! That’s like getting the Move controller FOR FREE!

I got to thinking, though, and eventually came to the conclusion that Sony probably beat me to: despite the power of what I describe above, the way they did it was probably smarter but because of a different psychological phenomenon: anchoring.

You may remember anchoring as our tendency to give undue weight to the first figure⁴ we hear when determining the value of something, even if the number is completely unrelated. As I mentioned in my article about the efficacy of those Steam bundle sales, behavioral economist Dan Ariely and his colleagues did a nifty experiment⁵ where they effected auction prices just by having bidders write the last two digits of their social security number on the top of their bid sheets. Those with high numbers (like 85) bid way more on items than those with low numbers (like 18). Anchoring!

Sony’s presenter capitalized on anchoring, quite deliberately I bet, when he threw up the $49.99 price for just the Move controller. There will be plenty of chances for Sony to advertise the value of bundles using diminishing sensitivity and the “But wait! There’s more!” tropes. Its job at E3 was to come out ahead of Microsoft in terms of how expensive people see its motion controller as when THAT was an important question on everyone’s mind. By throwing out the $49.99 number instead of the $129.99 number, Sony accomplished that. Sure, anybody can do the math, and judging by the audible groans from the audience plenty of people did. But that’s not the point. The point is that you⁶ are going to anchor on the lower number and think of the Move as relatively cheap.

And just imagine how much more effective that $49.99 anchor would have been if Microsoft really had announced the $149.99 price everyone expected for its motion controller, Kinect. I bet some folks at Sony were pretty annoyed that things didn’t break that way.

1. God, don’t get me started… [↩]
2. Think Wii Motion Plus with a glowy ball on the end [↩]
3. Kahneman, D. & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 263-291. [↩]
4. Or any perception, really [↩]
5. Ariely, D., Loewenstein, G., & Prelec, D. (2003). Coherent arbitrariness: Stable demand curves without stable preference. Quarterly Journal of Economics, 118, 73-105. [↩]
6. Or if not you, Mr. hyper rational guy, then plenty of buyers and analysts [↩]

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 days²

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

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 Times⁴ 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 down⁶ 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:

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.

1. For those of us paying in US Dollars, anyway. USA! USA! [↩]
2. Or you can also buy 60 or 90 day subscriptions at discounts [↩]
3. There was also some vague stuff in there about being able to earn game time in-game, but I’m gonna ignore that for now. [↩]
4. Lazarus, David (2009). Talk Isn’t Cheap? For Cellphone Users, Not Talking is Costly Too. Los Angeles Times, March 8, 2009. [↩]
5. Actually, aversions to metered payments vary a bit by culture; Eastern cultures show much lower preferences for flat rates. But you know …USA! USA! [↩]
6. Click here if you need help with that reference. [↩]
7. We also have diminished sensitivity towards gains, but because of loss aversion the magnitudes are smaller. [↩]
8. The caveat here, though, is that we don’t treat expenses from purchases in quite the same way as other losses, but that’s another article. [↩]