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TOUCH THAT AND I'LL KILL YOU: The Amazing Power of Loss Aversion
by Justin Fischer on 05/22/14 11:32:00 am   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Resident Evil 4 is the best game ever made. Hands down.

You don't agree? Well then, let me rephrase: I think Resident Evil 4 is the best game ever made.

No dice? Fine: I think Resident Evil 4 is the best game ever made, but I could be wrong.

There is nothing materially distinct about those statements. They all express an opinion that Resident Evil 4 is the greatest game ever made. But I'm going to guess that your reaction to each of them was incrementally less severe (unless you also think RE4 is the greatest game ever made). Why? Loss aversion.

The phrasing of the first statement implies that it is impossible for your favorite game to be the best game ever, because mine is. The second statement implies it impossible for me to think your favorite game is the best game ever because I think mine is. The third statement leaves the door wide open for your favorite game to unequivocally be the best game ever. Each modification reduces the pressure on your aversion to having your favorite game not, in fact, be the best game ever.

Human beings tend to demonstrate an interesting phenomenon: we experience losses far more intensely than we experience gains.

But I'm getting ahead of myself.

What is Loss Aversion?

The name is certainly descriptive: you have an aversion to losing things. We all do. Human beings tend to demonstrate an interesting phenomenon: we experience losses far more intensely than we experience gains. Chances are, if you found a $20 bill on the street, you'd be mildly excited. But, if you later lost that $20 bill, you'd be majorly pissed. But why? You're back where you started, no worse off. Easy-come, easy-go. Screw that, you say. That Jackson was MINE!

Here are some other examples. Have you ever:

  1. felt hesitation or heartache before throwing out, giving away, or selling a personal possession even though you hadn't even looked at it in a decade and rationally knew you would never use it again?
  2. purchased a game you weren't in any rush to play just because you found a once in a lifetime deal on it or because it was a rare title?
  3. purchased a more expensive, limited edition version of a product even though you had no significant interest in the extras it availed?
  4. persisted in an argument with a friend, even though you knew your friend was right, just for the sake of not losing the debate?
  5. gotten really pissed when a person that you dumped started dating someone else?

If you answered yes to any of that, then that strange and potent brew of anxiety, excitement, and frustration, that tempest in your stomach and fog in your head is loss aversion.

But, beyond being a universal experience, loss aversion is a significant cognitive bias: it will really screw with your ability to make rational decisions. And, as with all cognitive biases, being aware of loss aversion is not enough to counteract it.

Loss Aversion for Gamers

Loss aversion is commonplace in gamer culture. Fanboy'ism is all about loss aversion. Xbox One gamers don't want to feel like they missed out on all the cool stuff over on the Playstation 4, so they rationalize that loss aversion away by attempting to convince themselves (and everyone else in the foums) that the Playstation 4 is for stupid people. And the reverse is true for PS4 fans. And it was true of the N64 and the original Playstation, and the SNES and the Genesis. It's true of Mac's and PC's, Call of Duty and Battlefield, taekwondo and jujitsu, grape lollipops and cherry lollipops.

Oh, and my dad can TOTALLY beat up your dad. He always could.

A limited edition helps ensure that if you are willing to pay a higher price you're duly motivated by loss aversion to do so.

It's also present in the scarce-goods model of special/limited/collector's editions. Collectors editions are an example of what economists call "price discrimination": finding a way to get people who would be willing to pay more to do so without pricing-out everyone else. The fact that it's a limited edition helps ensure that, if you are one of those folks willing to pay a higher price, you're duly motivated by loss aversion to do so. If I don't get that CoD-branded remote control car now, then when, bro?

The same principle applies for DLC vouchers and special content for pre-orders or vender specific purchases. Publishers, developers, and vendors love pre-sales for obvious reasons. So, throw a lil' loss aversion in there and watch the numbers ratchet up. And now we have the phenomenon of venders offering unique pre-order content to make sure you pre-order from them. That's just cruel. Do you want the Valkyrie assault rifle from GameStop or the Raider shotgun from Origin? That's right folks: through the magic of loss aversion, you now have to comparison shop for pre-order bonuses. If there's a textbook example of a first world problem, that's it right there.

The Other Side of Loss Aversion

Loss aversion isn't just an Achilles heel to be manipulated for financial gain. It's also a PR nightmare. The trick about loss aversion is that it's really, really easy to trigger, whether you intend to or not. In reality, almost any change can trigger loss aversion, even if that change is for the better. Remember: losses loom larger than gains. People will focus on what the change costs them and overlook the benefits.

Say you're a manager, and you want to switch from one task tracking software to another. The new software is more reliable, easier to access from outside the office, and easier to use. Empirically, it will be a net positive to productivity. You make an excited announcement to your team: "Hey guys! Guess what? As of next week, we're transitioning to Pro Project 64 Professional Edition".

The reaction? Grousing. Lots and lots of grousing. You say "better stuff!" and your team hears "Hey guys! Guess what? An IT rep is going to take over your desk for an hour and install some software that you didn't ask for, while jawing at you about God knows what, and then you're going to have to learn an entirely new UI and workflow in order to regain your current pace of productivity." Your disruption to the status quo triggered the team's loss aversion. It's not that they're unprofessional, or self-absorbed, or immature. They're human, and you inadvertently pushed their buttons.

The trick about loss aversion is that it's really, really easy to trigger. Almost any change can trigger loss aversion, even if that change is for the better.

Now, apply this principle to gamers. On a rational level, online passes make sense: publishers can recover some value out of used game sales and cover some of the cost of server usage by gamers in the secondary market. And, seriously, let's be honest: if you bought the game new, entering an online passcode is really not a big deal. If you're playing a video game, you ostensibly have some time to kill. Spending 30 seconds to enter a code should rate somewhere around "Do dogs prefer hoppy beer or malty beer?" on your list of personal concerns. 30 seconds of your time and you get access to the gated content.

But the practice triggers a loss aversion due to the cost of your time and the denial of unrestricted access to something you paid for. For all its economic and business sense, online passes completely ignored the fundamental psychology of human beings. Gamers got pissed, publishers were painted as greedy pigs, and the whole idea was euthanized.

A similar example is on-disc DLC. Gamers go bananas about on-disc DLC. Holy smokes, we just go ape-shit over that concept. But again, putting aside emotions, think about what's really going on. You and a game maker engage in a tacit agreement: your cash for their product. It isn't a bait and switch: you are given a disc with all of the content you paid for. It just also happens to have other content that you didn't pay for and can't access yet. On-disc DLC is transactionally no different than regular old DLC: you buy the base product and then later pay for additional content. The only difference is that the latter is pulled down from the internet and the former is just unlocked. From that perspective, all the developers and publishers are trying to do is make it faster for you to get the content once you've paid for it.

But, of course, you can't put emotions aside. Developers and publishers think "more efficient delivery vector", and gamers think some combination of:

  • "I already paid for this! Why are you trying to charge me for it again?!"
  • "You deliberately held back this content from the launch release to charge me for it later!"

Now, again, rationally, neither of these arguments actually makes any sense. You didn't pay for access to the on-disc DLC. You paid for a plastic disc and access to the base content. And even if developers or publishers deliberately held back content, so what? That's their release strategy. Your purchase does not entitle you to everything they produced before they submitted the gold master. And again, this is no different than traditional DLC: there is absolutely nothing stopping a developer from deliberately holding back content for later release regardless of the vector.

If you're sitting there fuming at the screen, screaming where I can shove on-disc DLC, that's exactly why the concept didn't work: it tweaks the living hell out of your loss aversion. And if it makes you feel any better, I also have a loss aversion to on-disc DLC. Despite the fact that I just wrote the preceding paragraphs and despite all of my calls for rational thought, something about on-disc DLC just feels wrong.

And that's my point: the reality and the rational argument aren't the end of the conversation. You need to think about how your customer will feel about the product you're selling. Sure, maybe there's no logical reason to get upset about online passes or on-disc DLC, but for whatever emotional reason, it just makes people feel funny/manipulated/abused.

Oh, and remember that time David Vonderhaar tweaked the performances of some weapons in CoD and got shellacked with Twitter death threats? Yeah, guess what that was all about.

XBone'd

Microsoft's launch of the XBox One was a master class on loss aversion and the consequences of not considering it. Let's review - initially, the XBox one was going to:

  • Require an always-on connection
  • Prevent you from playing used games
  • Prevent you from borrowing games
  • Require you to leave a camera plugged in that may or may not be able to see your dong through your Dickies

And we all know how that turned out. To be fair, Microsoft did have some user experience justifications for the always-on connection and the Kinect requirement, but it didn't matter in the face of an all-powerful force like loss aversion. The reaction was so negative Microsoft ended up back pedaling on all of it. And all Sony had to do was say "Yeah, no" and it looked like a collective of forward-thinking, progressive, egalitarian geniuses. Round one: PS4.

How to Manage Loss Aversion

In some cases it's possible to avoid loss aversion by leaving (or appearing to leave) an option open. When expressing an opinion that might be controversial, simply prepend "I could be wrong, but..." or append "That's just my opinion." By doing so, you are providing a psychological safety net: your colleague can engage and consider your idea without the threat of his or her own being wrong. He or she has the option of accepting your idea or sticking with his or her own. The next time you're on the cusp of a heated debate, try that trick.

When the option approach isn't an...option, you can emphasize the benefits of the change, but that only goes so far, and won't really counteract loss aversion. So what is a manager or marketer to do?

You need to think about how your customer will feel about the product you're selling. Maybe there's no logical reason to get upset but it can still make people feel manipulated.

I've never worked on an oil rig, but I'm told that the way to put out a well fire is to set off a big explosion next to it and choke off its oxygen supply. It turns out that loss aversion is analogous. The way to counter loss aversion is with more loss aversion. Specifically, you need to create a loss aversion to inaction.

In the task tracking software example above, if you want to curtail the grousing, you need to position the old crappy software in such a way that it triggers a bigger loss aversion. For instance, indicate that the current software is unsuitable and will result in lower efficiency, necessitating late nights and weekend work. That's WAY worse than learning a new UI.

When it comes to product changes, you need to take a similar approach: if you need to change some key feature or delivery strategy and you want to mitigate backlash, explain why the change is necessary and the problems you want to avoid. Make sure it's clear why the consequences of inaction are worse than making the change.

All that being said, there is a difference between influencing your customers and manipulating them with spin. If you are honestly trying to communicate a true benefit the change creates or a significant problem it avoids, that's influence. Nothing wrong with influence. If you are trying to manufacture loss aversion by spinning a change to mask your true intentions, then you are trying to manipulate people. There's no grey area. You're either up front, or you're not. And if you're not, gamers, a highly connected and very cynical bunch of folks, will probably sniff you out.

Sim City, anyone?

Justin Fischer is a Senior Producer in the industry and an MBA candidate at the Kellogg School of Management in Chicago. You can follow him on Twitter at @gamergoeslegit
 
In addition, he is the co-founder of Clockwork Otter, a team of industry veterans creating tools for Unity 3D. Follow them at @_clockworkotter

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Comments


Lukasz Zawada
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Awesome article Justin. I mostly just skimmed for now, but will come back to it later in the day. I totally get where you are coming from. But, just a note on on-disc DLCs. I understand that from dev perspective there is the base content and "premium" content. But remember that until this started being a "thing," gamers were used to games that held everything on disc. And all the work the devs put into the game until it hit gold was, by an unsaid agreement, shipped as part of the game. Even day-one DLCs get less flame because between game hitting gold and game shipping out, there is development time of few months. It makes sense if something gets done in the meantime. However, on-disc DLCs are basically content the dev locked out, breaking customer trust - because nowhere on the box does it say "Base content only!" or "Premium content included". Whichever way you wish to put it.

Yes, it's all emotions. I agree with you on that. But if you asked for a pepperoni pizza and the guy gives you plain cheese pizza with a metal box with a lock on it with pepperoni content. Then you find out you can come back anytime to pay $1 extra for the key - not so appetizing now, is it? You thought you paid for the whole thing (after all, the games are $60 now). So now you feel like you paid for more than what you are used to, and now the pizza guy is taking more money with a weird business scheme! You have everything that you paid for? Why didn't he tell you pepperoni is extra to unlock! Well, that's how gamers feel about on-disc DLCs. They are paying $60 already, and the game they thought they were buying was "finished" and they can enjoy everything on the disc/pie. Little do they know is that the "full" experience costs $70.

Thoughts?

Justin Fischer
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Hey Lukasz,

Thanks for the kind words and for taking the time to write such a thoughtful rebuttal.

To your first point about consumer trust, I totally agree. But I would still argue that there is nothing inherently disingenuous or unethical about reserving a slice of content for later release as long as you get what was advertised with the base product. But it does FEEL disingenuous and unethical which is why it breaks trust. I personally wouldn't do it, and I think a lot of devs wouldn't do it, but there's nothing rationally wrong with it. You do have a point that delivering an experience that is drastically compromised for the sake of subsequent DLC is a shitty thing to do, but I don't know that that's unique to on-disc DLC. Nothing stopping devs or publishers from doing that with standard DLC.

To your second point, I think your analogy has a hole in it. In my experience, on-disc DLC isn't something promised with the initial purchase and then not delivered (that would be both completely disingenuous and unethical). It's something snuck onto the disc without your knowledge and then sold to you later. So it's not that your ordered pepperoni and got cheese, it's that you ordered pepperoni, got pepperoni, then Dominoes told you that you can also get mushrooms, and it turns out they are already hidden in the box, but you need to pay to unlock them.

As an aside, your comment reminded me that the Artorias of the Abyss DLC for Dark Souls is the worst of both worlds. You have to download it (and it's pretty big) to play online, but then you need to pay to unlock it.

But seriously, thanks again for reading and commenting. I love to discuss this kinda stuff with people, especially when the comments are polite and flame bait free!

Nick Harris
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There must be room on the Forza Motorsport 5 disc for every car. Many could be unlocked with microtransactions. The advantage would be that when I race against someone's La Ferrari it isn't substituted for something else. It makes no sense for liveries to be free either. In the past games you could sell a Nyan Cat car and members of the community would buy it via the marketplace - I know, because I did just that. I also bought La Ferrari, but it slightly irks me that others won't see and lust after it as I scream past them unless they also have bought the La Ferrari Car Pack; with a whole load of other indifferent cars that they probably never even wanted. Actually, whilst I'm on the subject, I would feel better about the cost of all of this if my Garage was unified in all other Forza games. I'm sure it would be technically possible. What I don't want to see is Turn 10 trying to get us to buy all the same cars again in Forza Horizon 2. Think of it like a Train Set with you only needing to buy new Rolling Stock if you change Gauge - i.e. future consoles.

Microsoft merely failed to commit to their vision for a 'Multimedia Jukebox' and lead everyone out of a hell of disc-swapping into a nirvana of demos aimed to persuade potential purchasers to pre-order for preloaded digital downloads, overnight updates with automatic restarts in the event of a power cut. "Always on" stresses the negative without explaining the positive - iOS like availability of multimedia, on your HD TV without the nuisance of recharging; the fact that an iPhone game is able to remember exactly where you left off playing it after having used the Home button to switch over to some other activity, as if it were any other form of paused media, just embarrasses both of the next-generation consoles with their continued reliance on checkpoints and save slots. Instead of recording and compressing your exploits in poor quality 720p30, the OS should capture every game input and then save the state of the engine when you review and edit clips for sharing so it can use the engine to reconstruct your past exploits from unrestricted camera angles from all the game inputs (of all players) over the last hour in full HD (much as happens in the Halo 3 Theater), and then resume it from where you left off (if it is single-player). Indeed, there is even scope for having a general Rewind mechanism, in both DVR functions for Live TV and in all games, so you can Rewind back to a point that makes sense for you to resume from.

Microsoft should have had the guts to eliminate the Blu-Ray player and not put Netflix behind an Xbox LIVE Gold Subscription paywall. There should have been Day ONE support for BBC iPlayer and other Catch Up TV services like Sky Go. The Marketplace would have benefitted from a 2TB HDD, whilst Xbox Video was just off-message for this supposed ALL IN ONE given that many still use their 360 for streaming videos from their PC without need of an additional subscription. The Kinect saps the GPU and only really needs to be active in the UI and the graphically undemanding dancing and fitness software. They could scrap Snap and I wouldn't miss it. All the concerns about not being able to play used games would be irrelevant if everything was a digital download. If you want to trade Titanfall or Destiny, just keep your 360 - after all, ONE isn't backwards compatible.

However, in the light of so many games not managing the hoped for 1080p60 of this generation, I do wonder if Sony and Microsoft rushed to market in response to Nintendo's early lead which led to a buggy Battlefield 4 and a year long slip for DriveClub with a pathetic frame rate compared to the sixty frames per second of Virtua Racing:

http://segaretro.org/Virtua_Racing

How much better would these consoles be at the same price given the constant improvement in hardware? How much more polished would the initial launch titles have been if their developers had been given more time? What was the rush, weren't they making money from GTA V?

Nils Pihl
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Loss aversion is a very real and documented thing, but many (if not most) of the examples you give are not loss aversion. It's as if though you're calling any cognitive bias "loss aversion".

Pallav Nawani
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"Resident Evil 4 is the best game ever made. Hands down."

Not loss aversion at all.
Not loss aversion at all, in my opinion.
Not what I think is loss aversion, but I could be wrong here.

Justin Fischer
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I'll admit I'm stretching concept of loss aversion here. My point is that if you have an idea in your head of the greatest game ever, and I say it's something else, why would you care? Why do we get into arguments with our friends about dumb things like that, and why do we get so worked up about whether X is better than Y? I'd argue that we have an inherent aversion to losing the argument. There's an element of anchoring as well. I've also noticed that when questions are phrased with some degree of ambiguity or neutrality, then others aren't as averse to accepting the new idea.

Tee Parsley
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The front end of your title is an exact quote of a polite Dark Troll's introduction to strangers of the important things in his dwelling (in the game Runequest). But you probably already knew that....

The second round of introductions was prefaced with 'I will beat you if you touch that!'

Justin Fischer
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I didn't know that, actually. The phrase just seemed to embody how some folks react to losing something or having something taken away from them.

Dave Hoskins
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Read the biases on this list and see what you recognise.
All of it?
http://en.wikipedia.org/wiki/List_of_cognitive_biases
They seem pretty useful, perhaps they're gameable.

Justin Fischer
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There are certainly gameable aspects. Borderlands had a great usage of loss aversion with the limited time items you could purchase at vending machines. Some of those items we're empirically less valuable than the stock items, but they seemed more valuable because of the time box.

It's also important to be mindful of how you employ biases. It's one thing to use them to make game play more interesting. It's another to employ them to make gameplay more "addictive" (a term that is thrown around far too casually).

Dave Hoskins
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Aaron Dave
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True so true.

Dave Hoskins
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Yeah.
I double posted by refreshing the submit or something.
But I couldn't delete it - apparently Gamasutra has it's own loss aversion! :D

Ron Dippold
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Or as another example, assume you have a perfectly good version of Peggle for iOS which you bought... and then EA replaces it with a crappy monetized to hell F2P version. Even for people who already bought the good version.

I don't even have the game loaded any more, so practically it makes little difference, but this still makes me upset!

Ujn Hunter
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That should be illegal. This is what I hate about the app store and their updates, you can't even download prior versions. If I've paid money for something, you shouldn't be allowed to remove functionality or add in craptastic IAP or Ads after the fact. Argh. So angry thinking about this. Haha.

Justin Fischer
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Removing functionality or changing the overall value proposition for a paid, software-as-a-product app is just shitty. It's not a good way to build trust/loyalty with fans. Changing the proposition for a SaaS product is okay, but if you paid a flat rate for a defined feature set, changing that up on you without you being able to opt-in is weak sauce.

Justin Fischer
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Yeah, that's a pretty bad bait-n-swith. The more elegant solution would be to make a separate SKU. EA's been a little ham-fisted with its approach to F2P.

Adam Korenman
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Justin,

Have a well-thought out and reasonable response, on the house.

http://www.cc2konline.com/component/k2/item/3552-a-reasonable-and
-well-mannered-open-letter-to-justin-fischer


none
 
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