The Psychology of Microsoft Points Part 2: Conversion Factors

Note: This is Part 2 of a two-part article on the psychological effects of using point-based currencies like Microsoft Points or Nintendo Points. Part 1, which you can read by executing precision clicking acts here, dealt with the psychology of waste. Below, I’ll look at how research on anchoring and consumer behavior using foreign currency suggests other psychological factors at play.

In a way, buying things with Microsoft or Nintendo points feels like spending money in a foreign currency. Tourists have long noticed this “Monopoly money” effect where the unfamiliar bills and coins with funny little holes in them don’t seem as real as the currency back home. This has to do with the fact that they don’t usually put the mental effort into doing the conversion every time they buy something.

“Though travelers know the exchange rate, it’s too much trouble to do the math for every little purchase,” says William Poundstone, who writes about the psychology of spending in the book Priceless: The Myth of Fair Value.1 “There is thus a zone of uncertainly about how much you’re ‘really’ spending, and this makes it a little harder to feel so bad about splurging. By setting 80 points to the dollar, Microsoft intentionally makes it hard to do the mental conversion! They could just as well have made it 100 points to a dollar, or 1 point = \$1.”2

That Modern Warfare map pack is going to cost you three eggs, a goat, and five lengths of knotted string.

This mental error also happens because people often pay more attention to the face value of the foreign currency (i.e., the number of Microsoft Points in this case) when estimating how much they spend. This is called “anchoring” in psychological parlance, and while I’ve discussed it before in the context of Steam sales I’ll repeat a quick illustration from one classic study by Kahneman and Tversky.3 In the experiment, the researchers asked some subjects to estimate this product:

8x7x6x5x4x3x2x1

Then they asked another group to estimate this product:

1x2x3x4x5x6x7x8

Look closely at both of those. Those of you who understand how multiplication works know that these products are equal –40,320 to be exact. Yet the average estimate for the group that was given the problem starting with “8″ was 2,250 while those who saw a “1″ at the beginning of the problem had an average estimate of just 512. Why? Because one group anchored on a high number and the other anchored on a low number. It turns out that anchoring can really screw with our estimations of everything from crime statistics to hardware failure rates to how much things cost in a foreign currency.

But you guys! Wait! At an exchange rate of about 80 points per 1 dollar, that means that anchoring on the number of Microsoft Points should lead us to feel that we’re spending more than we really are. Because while 1,200 points may equal \$15, the 1,200 number is more salient and through the magic of anchoring its magnitude systematically nudges our estimations of cost upwards. Indeed, studies comparing spending where the exchange rate for foreign currency is a multiple of the dollar (e.g., 1 US dollar = 4 Malaysian ringgits) to exchanges where the currency is worth a fraction of the dollar (e.g., 1 US dollar = 0.4 Bahraini dinar) have shown underspending in the former and overspending in the latter.4 And if spending MS Points is like spending Malaysian ringgits in that 1 dollar gets you 80 points, Microsoft could actually be letting us off easier than they could if they gave you just .8 points for a dollar and charged 12 points for a new game. But shhhh! Don’t tell them!

So there you have it. Maybe you’ll be a little better informed next time you plunk down money for MS Points, Playstation Network funds, or Nintendo Points. Hey, if you really do want something and think it’s a good price by all means do what you need to do to buy it! Just consider everything above first.

Footnotes:

1. Poundstone, W., personal communication with author, April 21, 2011.
2. Which is pretty much what Nintendo and Sony do.
3. Tversky, A. and Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185, 1124-1131.
4. Raghubir, P. & Srivastava, J. (2002). Effect of Face Value on Product Valuation in Foreign Currencies. Journal of Consumer Research, 29 335-347.

8 thoughts on “The Psychology of Microsoft Points Part 2: Conversion Factors”

1. Jamie Madigan says:

By the way, the “sooooper sekrit” part 3 isn’t as crass as you might think. These two articles are basically “leftovers” from the piece I did for GamePro. I had written this stuff up before cutting it from the article, but I didn’t want it to go to waste.

2. I have an idea why you might get so many points for your dollar. There are two transactions – the one where you buy the points, and the one where you buy the game.

If they don’t use \$1 for 1 point then both of these transactions have to be “anchored”, one high and one low. This way, they have a high anchor for the inital sale. By getting 1200 for just one dollar, that’s ALOT of points for your dollar, right? That looks like a good deal.

Once the first transaction is done you now have the low anchor. Perhaps this is where MS start to rely on the methods you discussed in Part 1 to encourage the use of these points. Although the deal doesn’t look quite as good, you have the points so you’d better use them anyway.

3. EmmJay says:

Despite the literature pointing towards underspending when applied to Microsoft Points, I’m inclined to think that 1200 Points ‘feel’ closer to \$12 than \$15 for quite a few consumers.

EA and BioWare have done the same for DLC to Mass Effect and Dragon Age. Not only is there a weird conversion rate, but you can’t buy points in the packages that correspond to the prices, which you pointed out in the first entry to the series.

There is a third problem now, however: I have bought every DLC for Mass Effect 2 and thus I have no way of spending the odd remainder of points left in my account, even if I was prone to waste aversion. I have to hope that there will be DLC for Mass Effect 3 that I can buy with what I have left and/or rebuy an odd amount so that sometime in the future my account balance is 0, which I’m guessing will never happen.

• Jonathon Doran says:

Both of these articles have excellent points. I force myself to do the conversion before buying things with virtual currencies (and foreign currencies), and this causes me to have a lot of resistance initially. But it makes perfect sense that some would treat these currencies as monopoly money.

The oddball remainder must be intentional, as it essentially adds up to a loan to the company without all the messy paperwork. By purchasing points today with real money, we obtain the promise of future value. In the meantime the company gets the use of the real currency, and the customer might forget the matter entirely. This is sort of like gift cards.

When Sony launched Station Cash, they gave subscribers 500 points. This wasn’t enough to buy much, yet it represented “lost value” for the subscriber. The solution was to purchase more points.

Turbine awards small amounts of Turbine Points in games such as Lord of the Rings Online. Technically the player never needs to spend a penny to obtain any item in the store, if they are willing to farm the points. But the impatience of the players, plus the feeling of lost value surely caused many to buy points so they could obtain some shiny object they had their eyes on. I really love this illusion of free money.

4. Vargen says:

The bit that gets me isn’t so much the conversion rate as it is the bundles I have to buy. I’ll pick on Nintendo since they’ve really annoyed me with that in the past.

With Nintendo, I have to buy points in \$10 chunks. I wanted Legend of Zelda a while back. That’s listed for only \$5, but it cost me \$10 out-of-pocket. Now I want Secret of Mana. That costs \$8… but the \$5 credit I have won’t help me. It’s going to cost me another \$10 to get enough points for that game too. If/when I buy that I’ll have \$7 worth of points left over, and nothing I want to spend it on.

This whole process feels like it’s designed to rip me off. I don’t like being ripped off, so I haven’t bought Secret of Mana. Waste-aversion is definitely part of why I feel this way–I don’t like my \$5 remainder growing to \$7–but it’s not the only reason.

5. Alex says:

Very informative article, but if I had to guess for a reason these companies are using virtual currencies for their virtual stores, I would say to disconnect themselves from direct cash.

Once you buy the points, you’re not spending cash, but points. Purchasing is a less guilty, more RPG-fun activity.

Does the distancing from cash have any such effect on our shopping behavior?

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