Behavioral Economics and Social Games

2. Behavioral Economics and Social Games Playdom Business Intelligence Team Dave Botkin Elena Rykhlevskaia Behavioral Economics and Social Games

3. Agenda • How does brain make $$ decisions • Behavioral economics principles to: • Help customers understand their preferences • Price virtual goods • Influence purchase decisions

4. Your money and your brain We all look the same in an MRI machine

5. Your brain knows your decision before you know it Prefrontal cortex Nucleus accumbens • Gain prediction • Loss prediction • Strategic reasoning + execution Anterior insula

6. Brain activation predicts your decision to purchase

7. How do we decide? Reason vs. emotions Reason + emotions Reason guides soul to truth Intelligent intuition

8. Rational + Emotional = Decision • Emotions are a decision making resource • Fast • Help with complex choices • Emotions can misguide us • Heuristics / biases Ames room: heuristics cause a mistake

9. Helping game players make a decision Know what they want • How do you help them discover their preferences? Reasoning & execution Know what they are willing to pay • How do you price virtual goods? Loss prediction Gain prediction Inspire immediate action • How do you influence users to buy?

10. Help customers find what they want Different customers value different things. E.g.: • Revenge & competition • Time • Efficiency • Aesthetics • Financial gain/loss optimization

11. Revenge and competition

12. Saving time

13. Efficiency seekers choose best alternatives

14. Which one would you choose?

15. Efficiency seeker’s city

16. Decorator’s city

17. Aesthetes / Decorators chose things they “like” • Don’t know own preferences that well • Rely on reference points to understand own preferences • Context matters

18. We do not know our preferences well

19. Which sweetheart would you buy? MOST FUN STEVE THE COMEDIAN $30,000 $32,000 $32,000

20. Context matters • Online only - $59.00 • Online + print - $125.00 • Print only - $125.00 3 options 2 options Percent sales Online Online+Print Print Only

21. Financial gain/loss optimization Deals, discounts and bundles

22. Increasing perceived value • Good things are wanted by everyone else • Good things cost more $$$ • Brain pleasure centers light up to pricier goods • Expensive drugs work better • Lower priced items assumed to be of lower value

23. Pricing How much are customers willing to pay? • Coherent arbitrariness - there is no “right” price in a consumer’s mind • Anchoring and reference – people use nearby comparison and adjustment

24. How do we infer value? $279 $429

25. Anchoring 59% Would attend for free 35% Willing to attend a poetry reading 8% 3%

26. Default option provides an anchor

27. Conversion • Avoid choice overload • Minimize perceived loss with respect to gain • Use weapons of influence

28. Avoid choice overload % customers who purchased jam jam variety offered for tasting

29. What would you change in this store front to help customer decide?

30. Minimize perceived loss with respect to gain • Loss aversion: Losses are 3X more painful than gains are pleasurable • Paid contract spoilage recovery vs. instant completion: 3x more users opt in

31. Loss aversion KEEP

32. Influence ammo: Social referencing Validation Scarcity Conformity

33. Influence ammo:Reciprocity

34. Recap Know what your customers want Know what they are willing to pay Inspire immediate action

35. Resources

36. Things to try today • Treat virtual goods as retail and consumer products • Reference successful retail practices outside of the social gaming space • Research psychology of consumption • Framing and presentation • Optimize number of choices • Experiment with context • Make some options “pop” • Techniques for suggesting a price • Anchoring, reference points • Try charging 2X more

37. Thanks!