Game Economy & Monetization – Loss Aversion

Game Economy Design & Monetization - Loss Aversion Bias

This is the pilot post in a series of articles, dedicated to Game Economy & Monetization. It will be especially valuable for you if you happen to be working on F2P products.

We will explore psychological biases, utilized by game design patterns to direct player behavior towards retaining the players, enticing them to contribute content, and, of course, buy more products. For a start, let’s dive into the territory of Loss Aversion. What is it?

Definition of Loss Aversion According to Wikipedia:

Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains. The principle is prominent in the domain of economics. What distinguishes loss aversion from risk aversion is that the utility of a monetary payoff depends on what was previously experienced or was expected to happen. Some studies have suggested that losses are twice as powerful, psychologically, as gains. Loss aversion was first identified by Amos Tversky and Daniel Kahneman.

Thus, the principle of Loss Aversion implies that a person $100, will lose more satisfaction, than the satisfaction he will gain from unexpectedly gaining $100.
How does this apply to marketing? Trial periods, demo versions, F2P, etc. Any approach that allows you to interact with a product and gets you “hooked” for a period of time and then stops your progression.

Prospect Theory & Loss Aversion

(From Wikipedia) Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner. For example, for some individuals, the pain from losing $1,000 could only be compensated by the pleasure of earning $2,000. Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people.
As you can see the central assumption of the Prospect Theory is that “losses loom larger than corresponding gains”, which is basically the same principle as in Loss Aversion.

Some Examples

  • Imagine you play a F2P RPG game. You level-up a hero through completing dungeons. The process involves gathering powerful items and getting to know the game world as well. Then suddenly you either hit a difficulty wall, which requires you to purchase powerful equipment to progress further or it requires you to pay in order to unlock the next levels. If you don’t comply with this “extortion” you are to lose your progress and the time you spent into the game;
  • Another popular mechanic in decaying of game items (like crops in Farmville) unless you log in frequently;
  • Or a tycoon game similar to Clash of Clans where you can pay a fee to protect your “base” from attacks, while you are away, thus preserving the gathered resources.
    This also shows us the connection between Loss Aversion and the “Sunk cost fallacy”. It implies that people are far more willing to invest more effort in an activity that they have already invested in before;

The Sunk Cost Fallacy doesn’t apply only to money invested into the game. As with the RPG example, it also includes time and effort. Thus it’s usually justified to design your game in a way to cover both grinders (players who are not willing to spend money, but are willing to invest time in gaining in-game content) and spenders (players who are willing to spend money in order to get quickly to a certain point in the game or a specific item)

Asymmetry & Organic Design

I’m a firm believer that a game experience should feel organic. What I mean by that is that it should not be based on predictable patterns. Either from a timeline or a functional perspective. Whenever a game feels “orchestrated” and synthetic it will face difficulting in creating that desired “immersion” experience. Why is that? I won’t get into much detail about this here, but let’s say that asymmetry is a very profound principle in nature, check this article and this, and so on. Thus, asymmetry, as such, is a principle, which can easily “sell” an experience as organic to your auditory. On the contrary – artificial creations are usually symmetrical.
I believe that this principle is one of the major reasons for the existence and the power of all those biases and fallacies. At the end of the day, you can see those principles applied by the marketing almost everywhere – stores design, landing pages, sales, time-limited promotions, the list goes on…

Loss Aversion In a Nutshell

The more effort the user puts and/or money she invests, the more likely she is to keep playing because of the feeling of losing all the already incurred costs and acquired endowments.

Controversy

Game developers have been blamed for designing their games to be money-making systems. They do so by harnessing psychological biases and in the process shifting the player’s motivations from intrinsic ones to extrinsic ones. Additionally, it seems that these business successes in using persuasive game mechanics have sparked the gamification hype. Gamification appears to be a quickly widening market niche that has lured many companies into implementing such principles in their products/services.
We will further talk about gamification, but if you’re interested in applying this to your product, get in touch – we can help!

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