PEOPLE & GAMBLING BEHAVIORAL ECONOMICS 101 FOR GAMBLING SERVICES

UK bank customers only switch providers once every 26 years - 3.8% each year.

In 2013 ‘seven day switching’ will be

implemented in the UK.

PEOPLE OFTEN STICK WITH WHAT THEY HAVE OR WHAT THEY KNOW – EVEN IF

THERE ARE BETTER ALTERNATIVES

The emotional impact of a financial loss is double that of an equivalent gain.

We hate losing what we have

(or think that we have).

PEOPLE ARE MORE SENSITIVE TO LOSSES THAN TO GAINS

82% of patients preferred surgery over radio therapy when surgery was

described as having a 90% survival rate

56% preferred surgery over radio therapy when it was described as

having a 10% mortality rate.

THE FRAME OF REFERENCE MASSIVELY

INFLUENCES THE CHOICES PEOPLE MAKE

A pilot of the “Save More Tomorrow” saving

approach increased the average saving rate over a

three year period from 3.5% to 11.6%

PEOPLE TEND TO PREFER SHORT-TERM

GRATIFICATION OVER LONGER TERM RETURNS

The typical household in the sample of Americans had more than $5,000 in liquid assets (typically in savings accounts earning less than 5% per year) and nearly $3,000 in credit card balances, carrying a typical interest rate of 18% or more.

MONEY IS TREATED AND VALUED DIFFERENTLY DEPENDING ON WHERE IT

CAME FROM OR HOW IT’S KEPT

In the USA people rate the chance of death by homicide higher than the

chance of death by stomach cancer, even though death by stomach cancer is

five times higher than death by homicide.

PEOPLE JUDGE THE LIKELIHOOD OF AN OUTCOME BY HOW EASILY IT CAN BE

BROUGHT TO MIND OR IMAGINED

“Organizations with high trust outperform

organizations with low trust by nearly

three times.” (Watson Wyatt 2002)

TRUST IN AN ORGANISATION REDUCES THE NEED TO CHECK INFORMATION AND IMPOSE

CONTROLS

People are 67% more likely to stop smoking if their

spouse does.

36% more likely if a friend kicks the habit.

25% more if a sibling quits.

WE TEND TO COPY PEOPLE WE TRUST

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SO, WHAT IS BEHAVIORAL ECONOMICS?

Behavioral economics is the study of the effects of psychology on decision making.

In other words, how people’s emotions and

thoughts can affect how they make decisions.

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WHAT DRIVES OUR DECISIONS?

 Reasoning  Logic  Self interest

 Inertia

 Laziness?

 Peer pressure?

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BEHAVIOUR CHANGE THEORY TWO BROAD APPROACHES

Rational/Cognitive Automatic

  The standard model in economics.

  The presumption is that people will analyse the various pieces of information and the numerous incentives offered to us and act in ways that reflect their best interests.

  Much of advertising is predicated on this approach

  The context within which people just act.

  Recognises that people are often irrational and inconsistent in their choices > Behavioural Economics

  Influenced by surrounding factors.

  About changing behaviour without necessarily changing minds (first).

?

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THE BRAIN’S TWO SYSTEMS

  Controlled   Effortful   Deductive   Slow   Self-aware

  Eg Learning a foreign language   Planning an unfamiliar journey   Counting calories

  Uncontrolled   Effortless   Emotional   Fast   Unconscious

  Eg Speaking in your mother tongue   Taking the daily commute   Desiring cake

Rational Automatic

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THIS REPRESENTS A FUNDAMENTAL CHALLENGE TO CONVENTIONAL WISDOM

IN MARKETING

“It is rarely advisable to view attitude change as a pre-cursor to behaviour change”

COI Communications

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MINDSPACE A BEHAVIORAL ECONOMICS MODEL

MINDSPACE

MESSENGER We are heavily influenced by who communicates information

INCENTIVES Our responses to incentives are shaped by predictable mental shortcuts such as strongly avoiding losses

NORMS We are strongly influenced by what others do

DEFAULTS We ‘go with the flow’ of pre-set options

SALIENCE Our attention is drawn to what is novel and seems relevant to us

PRIMING Our acts are often influenced by sub-conscious cues

COMMITMENTS We seek to be consistent with our public promises, and reciprocate acts

EGO We act in ways that make us feel better about ourselves

AFFECT Our emotional associations can powerfully shape our actions

MESSENGER

Who communicates matters:

 Are they expert and/or trusted?

 Are they similar to us - the more similar the better?

 Are they liked?

 Overcoming the adversarial relationship between bookmaker and punter is key! (Victor Chandler?)

INCENTIVES

Gambling is full of incentives:

1.  Losses loom larger than gains: “Loss Aversion” Remove barriers of failure to incentivize action

INCENTIVES

One recent study on weight loss asked participants to deposit money into an account, which was returned to them (with a supplement) if they met weight loss targets.

After seven months this group showed significant weight loss compared to their entry weight.

The weight of participants in a control group was not seen to change.

INCENTIVES

  Reference points matter 10 is much more that 0, but 15 is not perceived to be a great deal more

INCENTIVES

  We overweight small probabilities Lotteries may act as a powerful motivation (since people overweigh the small chance of winning) People are likely to over-emphasise the small chance of, say, being audited, which may lead to greater tax compliance

INCENTIVES

  Loyalty programs don’t work in gambling: We live for today at the expense of tomorrow.   £10 today is preferred to £12 tomorrow.   But £12 in eight days may be preferred

to £10 in a week’s time. We usually prefer smaller, more immediate payoffs to larger, more distant ones. We don’t differentiate between medium and long-term rewards.

INCENTIVES

  Some incentives can back fire. Free cash / bets for opening an account can actually increase churn overall.

NORMS

 We tend to do what those around us are already doing

 We take our social norms from  Observing what others

do  Environmental clues

about what others have done or are doing

 Norms spread rapidly though networks

NORMS  In store Score casts are

too complicated – and there is little chance of punters winning from them.

 This often frames gambling as something difficult and challenging or unlikely to happen.

  Something open only to experts.

NORMS  Building cultural reference points to establish ways

of thinking

NORMS

 Use norms to create social interest:

  Most popular bets   Bet of the Day   Top 5 bets

NORMS

 Use norms to create social acceptance:

  The National Lottery   The Health Lottery   Scratch cards /

Practice money

NORMS

 Use norms to create social acceptance:   Social Gaming:

  Followed by Zynga Slingo with 2.2 million DAU and then Platika’s Slotomania – Slot Machines with 1.9 million DAU.

  AppData shows the top social gambling game on Facebook is still Zynga’s Texas HoldEm Poker with 7 million daily active users.

NORMS CAN BACKFIRE

 Two signs were placed in different areas of a national park

 Sign A  Urged visitors not to take wood

and depicted a scene showing a single thief doing so

 Result: Amount stolen increased by ~2%

 Sign B  Urged visitors not to take wood

and depicted a scene showing three thieves stealing wood

 Result: Amount stolen increased by ~8%

Source: Robert Cialdini

DEFAULTS

 We go with the flow of preset options

 Ventilators have settings that allow doctors to decide how much air to blow into the lungs per minute.

 Lungs can be injured if volumes are too high.

 A research study changed the default setting of the ventilators to lower volumes of air into patients lungs.

 The mortality rate reduced by 25%

DEFAULTS

 Online, defaults could be set to £10 for lower bets.

 Re-targeting: using data to pre populate forms with pervious session data.

 Football coupons defaulted to £5 bet per line.

SALIENCE

 Our attention is drawn to what is novel, simple and seems relevant to us

 Creating excitement itself drives people to want to gamble “Game On”

SALIENCE

 It is hard to create relevance and differentiation in gambling.

 Every book maker is using the same technolgy

platforms:   OpenBet   Global Draw

PRIMING

 Our acts are often influenced by unconscious cues   Verbal / Audio   Images / feeling

“Noise of winning” “Chips make it a game”

AFFECT (THE ACT OF EXPERIENCING EMOTION)  Emotional associations can powerfully shape our

actions  People in good moods make unrealistically

optimistic judgments.  Whilst those in bad moods make unrealistically

pessimistic judgments.

COMMITMENT

  People who express commitment are more likely to fulfill their commitments.

  Virtual / practice money get people betting without any risk, making it more likely they will place money latter

COMMITMENT

  Get customers to place small bets first, to get bigger bets latter.

  Provide free money, or no money online games.   i.e Online Casino’s / poker sites.

  Social gambling: “Getting people talking about gambling first, betting later”

  UK online bingo game maker Gamesys‘ new game Bingo & Slots Friendzy is the first on Facebook App Centre to pay real cash prizes (Aug ’12)

SIGNING CONTRACTS – VISIBLE COMMITMENT

 Motivating people to get fit through exercise  A study compared two groups

 Group A signed a contract specifying the exercise goals to be achieved

 Group B group were simply given a walking program but did not enter sign a contract.

Source: Department of Health Sign-up to Interactive betting guides

SIGNING CONTRACTS – VISIBLE COMMITMENT

COMMITMENT CAN BE ACHIEVED VERBALLY  A restaurant needed to reduce

the number of ‘no shows’

 When taking bookings the receptionist used to say  “Please call if you have to cancel”

 The no shows reduced dramatically when this was turned into a question (From ~30% to 10%)  “Would you be able to call if you have to cancel?”

(and waited for reply) Source: Robert Cialdini

EGO

 We act in ways that make us feel better about ourselves  When things go well in our lives, we attribute it to

ourselves;  When they go badly, it’s the fault of other people,

or the situation we were put in.  (known as the ‘fundamental attribution error’)

  We are biased to believe that we perform better than the average person in various ways:

  93% of American college students rate themselves being “above average” in driving ability

EGO

Online players can use the information to judge the likely actions other players based on previous data.

 SharkScope is the largest database of poker players tournament results.

 PokerStars on Pintrest – celebrating stars of the Game

LABELING INFLUENCES BEHAVIOR

 The greater the expectation placed on people, the better they perform.

 Thus, people with positive expectations internalise the “positive” label and succeed accordingly;

 But this influence can also be detrimental if a negative label is used

WHO’S USING BEHAVIORAL ECONOMICS?

 Actively used in government policy planning in many countries (See The Cabinet Offices “Nudge unit”)

 Actively used in architecture of public buildings

 Used in Direct Marketing and Shopper Marketing

 Beginning to be used in marketing departments and creative agencies – few case histories

WHAT YOU CAN DO

 Start by reading ‘Nudge’

 Think about how these insights can be applied from the perspective of your domain

 Remember that real people are not rational, linear creatures and that the behaviour mapping tools we use are a rough proxy to reality

 Apply this thinking in the work you do, every day

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THANK YOU