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BEHAVIORAL ECONOMICS 101 FOR GAMBLING SERVICESPEOPLE & GAMBLING
PEOPLE OFTEN STICK WITH WHAT THEY       HAVE OR WHAT THEY KNOW – EVEN IF        THERE ARE BETTER ALTERNATIVES UK bank cust...
The emotional impact of a financial loss is                    double that of an equivalent gain.                      We ...
THE FRAME OFREFERENCE MASSIVELY  INFLUENCES THECHOICES PEOPLE MAKE          56% preferred                              sur...
PEOPLE TEND TO PREFER     SHORT-TERM  GRATIFICATION OVER LONGER TERM RETURNS     A pilot of the “Save More        Tomorrow...
MONEY IS TREATED AND VALUEDDIFFERENTLY DEPENDING ON WHERE IT                        CAME FROM OR                          ...
PEOPLE JUDGE THE LIKELIHOOD OF AN   OUTCOME BY HOW EASILY IT CAN BE    BROUGHT TO MIND OR IMAGINED In the USA people rate ...
“Organizations withhigh trust outperform  organizations with  low trust by nearly     three times.”(Watson Wyatt 2002)TRUS...
People are 67% more likely                    to stop smoking if their                         spouse does.               ...
SO, WHAT IS BEHAVIORAL ECONOMICS?Behavioral economics is the study of theeffects of psychology on decision making.In other...
WHAT DRIVES OUR DECISIONS? Reasoning Logic                  ?    Inertia                       Laziness? Self interes...
BEHAVIOUR CHANGE THEORY        TWO BROAD APPROACHESRational/Cognitive  The standard model in                             ...
THE BRAIN’S TWO SYSTEMSRational                            Automatic  Controlled                         Uncontrolled  ...
It is rarely advisable to view attitude change      as a pre-cursor to behaviour change                                   ...
MINDSPACEA BEHAVIORAL ECONOMICS MODEL                           15
MINDSPACEMESSENGER     We are heavily influenced by who communicates information              Our responses to incentives ...
MESSENGERWho communicates matters: Are they expert and/or  trusted? Are they similar to us - the  more similar the bette...
INCENTIVESGambling is full of incentives:1.  Losses loom larger than gains: “Loss Aversion”    Remove barriers of failure ...
INCENTIVES         One recent study on weight loss asked         participants to deposit money into an         account, wh...
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 overweig...
INCENTIVES  Loyalty programs don’t work in gambling:   We live for today at the expense of   tomorrow.      £10 today is...
INCENTIVES  Some incentives can back fire.      Free cash / bets for opening an      account can actually increase churn ...
NORMS We tend to do what  those around us are  already doing We take our social  norms from  Observing what others   do...
NORMS In store Score casts are  too complicated – and  there is little chance of  punters winning from  them. This often...
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 /     ...
NORMS Use norms to create  social acceptance:      Social Gaming:  AppData shows the top social gambling game   on Face...
NORMS CAN BACKFIRE Two signs were placed in  different areas of a national  park  Sign A                              S...
DEFAULTS We go with the flow of preset options Ventilators have settings that allow doctors to  decide how much air to b...
DEFAULTS Online, defaults could be set to £10  for lower bets. Re-targeting: using data to pre  populate forms with perv...
SALIENCE Our attention is drawn to what is novel,  simple and seems relevant to us Creating excitement itself drives peo...
SALIENCE It is hard to create relevance and differentiation  in gambling. Every book maker is using the same technolgy  ...
PRIMING Our acts are often influenced by unconscious cues  Verbal / Audio                 Images / feeling         “Noi...
AFFECT (THE ACT OF EXPERIENCINGEMOTION) Emotional associations can powerfully shape our  actions People in good moods ma...
COMMITMENT               People who express                commitment are more                likely to fulfill their    ...
COMMITMENT  Get customers to place small bets first, to   get bigger bets latter.  Provide free money, or no money onlin...
SIGNING CONTRACTS – VISIBLECOMMITMENT Motivating people to get fit through exercise A study compared two groups    Grou...
SIGNING CONTRACTS – VISIBLECOMMITMENT
COMMITMENT CAN BE ACHIEVEDVERBALLY A restaurant needed to reduce  the number of ‘no shows’ When taking bookings the  rec...
EGO We act in ways that make us feel better about  ourselves    When things go well in our lives, we attribute it to    ...
EGO SharkScope is the largest  database of poker players  tournament results.  Online players can use the  information to...
LABELING INFLUENCES BEHAVIOR The greater the expectation placed on people, the  better they perform. Thus, people with  ...
WHO’S USING BEHAVIORAL ECONOMICS? Actively used in government policy planning in  many countries (See The Cabinet Offices...
WHAT YOU CAN DO Start by reading ‘Nudge’ Think about how these insights can  be applied from the perspective of  your do...
THANK YOU            47
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Using Behavioural Economics To Create Value In Gambling

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A presentation given on how to use behavioural economics in the gambling industry

Transcript of "Using Behavioural Economics To Create Value In Gambling"

  1. 1. BEHAVIORAL ECONOMICS 101 FOR GAMBLING SERVICESPEOPLE & GAMBLING
  2. 2. PEOPLE OFTEN STICK WITH WHAT THEY HAVE OR WHAT THEY KNOW – EVEN IF THERE ARE BETTER ALTERNATIVES UK bank customers onlyswitch providers once every26 years - 3.8% each year. In 2013 ‘seven day switching’ will be implemented in the UK.
  3. 3. 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
  4. 4. THE FRAME OFREFERENCE MASSIVELY INFLUENCES THECHOICES PEOPLE MAKE 56% preferred surgery over radio therapy when it was described as having a 10% mortality rate. 82% of patients preferred surgery over radio therapy when surgery was described as having a 90% survival rate
  5. 5. PEOPLE TEND TO PREFER SHORT-TERM GRATIFICATION OVER LONGER TERM RETURNS 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%
  6. 6. MONEY IS TREATED AND VALUEDDIFFERENTLY DEPENDING ON WHERE IT CAME FROM OR HOW IT’S KEPTThe typical household in the sample of Americans had more than $5,000 in liquidassets (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.
  7. 7. PEOPLE JUDGE THE LIKELIHOOD OF AN OUTCOME BY HOW EASILY IT CAN BE BROUGHT TO MIND OR IMAGINED 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.
  8. 8. “Organizations withhigh trust outperform organizations with low trust by nearly three times.”(Watson Wyatt 2002)TRUST IN AN ORGANISATION REDUCES THENEED TO CHECK INFORMATION AND IMPOSE
  9. 9. People are 67% more likely to stop smoking if their spouse does. 36% more likely if a friendWE TEND TO COPY kicks the habit.PEOPLE WE TRUST 25% more if a sibling quits.
  10. 10. SO, WHAT IS BEHAVIORAL ECONOMICS?Behavioral economics is the study of theeffects of psychology on decision making.In other words, how people’s emotions and thoughts can affect how they make decisions. 10
  11. 11. WHAT DRIVES OUR DECISIONS? Reasoning Logic ?  Inertia  Laziness? Self interest  Peer pressure? 11
  12. 12. BEHAVIOUR CHANGE THEORY TWO BROAD APPROACHESRational/Cognitive  The standard model in ? Automatic   The context within which economics. people just act.  The presumption is that   Recognises that people are people will analyse the often irrational and various pieces of inconsistent in their choices information and the > Behavioural Economics numerous incentives offered   Influenced by surrounding to us and act in ways that factors. reflect their best interests.   About changing behaviour  Much of advertising is without necessarily predicated on this approach changing minds (first).
  13. 13. THE BRAIN’S TWO SYSTEMSRational Automatic  Controlled   Uncontrolled  Effortful   Effortless  Deductive   Emotional  Slow   Fast  Self-aware   Unconscious  Eg Learning a foreign language   Eg Speaking in your mother tongue  Planning an unfamiliar journey   Taking the daily commute  Counting calories   Desiring cake 13
  14. 14. It is rarely advisable to view attitude change as a pre-cursor to behaviour change COI Communications THIS REPRESENTS A FUNDAMENTALCHALLENGE TO CONVENTIONAL WISDOM IN MARKETING 14
  15. 15. MINDSPACEA BEHAVIORAL ECONOMICS MODEL 15
  16. 16. MINDSPACEMESSENGER We are heavily influenced by who communicates information Our responses to incentives are shaped by predictable mental shortcuts INCENTIVES 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 AFFECT Our emotional associations can powerfully shape our actionsCOMMITMENTS We seek to be consistent with our public promises, and reciprocate acts EGO We act in ways that make us feel better about ourselves
  17. 17. MESSENGERWho 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?)
  18. 18. INCENTIVESGambling is full of incentives:1.  Losses loom larger than gains: “Loss Aversion” Remove barriers of failure to incentivize action
  19. 19. 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.
  20. 20. INCENTIVES  Reference points matter 10 is much more that 0, but 15 is not perceived to be a great deal more
  21. 21. 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
  22. 22. 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.
  23. 23. INCENTIVES  Some incentives can back fire. Free cash / bets for opening an account can actually increase churn overall.
  24. 24. 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
  25. 25. 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.
  26. 26. NORMS Building cultural reference points to establish ways of thinking
  27. 27. NORMS Use norms to create social interest:   Most popular bets   Bet of the Day   Top 5 bets
  28. 28. NORMS Use norms to create social acceptance:   The National Lottery   The Health Lottery   Scratch cards / Practice money
  29. 29. NORMS Use norms to create social acceptance:   Social Gaming:  AppData shows the top social gambling game on Facebook is still Zynga’s Texas HoldEm Poker with 7 million daily active users.  Followed by Zynga Slingo with 2.2 million DAU and then Platika’s Slotomania – Slot Machines with 1.9 million DAU.
  30. 30. NORMS CAN BACKFIRE Two signs were placed in different areas of a national park  Sign A   Sign B  Urged visitors not to take wood   Urged visitors not to take wood and depicted a scene showing and depicted a scene showing a single thief doing so three thieves stealing wood  Result: Amount stolen   Result: Amount stolen increased by ~2% increased by ~8% Source: Robert Cialdini
  31. 31. 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%
  32. 32. 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.
  33. 33. 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”
  34. 34. SALIENCE It is hard to create relevance and differentiation in gambling. Every book maker is using the same technolgy platforms:   OpenBet   Global Draw
  35. 35. PRIMING Our acts are often influenced by unconscious cues  Verbal / Audio   Images / feeling “Noise of winning” “Chips make it a game”
  36. 36. AFFECT (THE ACT OF EXPERIENCINGEMOTION) Emotional associations can powerfully shape our actions People in good moods make unrealistically optimistic judgments. Whilst those in bad moods make unrealistically pessimistic judgments.
  37. 37. 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
  38. 38. 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)
  39. 39. SIGNING CONTRACTS – VISIBLECOMMITMENT 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
  40. 40. SIGNING CONTRACTS – VISIBLECOMMITMENT
  41. 41. COMMITMENT CAN BE ACHIEVEDVERBALLY 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
  42. 42. 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
  43. 43. EGO SharkScope is the largest database of poker players tournament results. Online players can use the information to judge the likely actions other players based on previous data.  PokerStars on Pintrest – celebrating stars of the Game
  44. 44. 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
  45. 45. 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
  46. 46. 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
  47. 47. THANK YOU 47
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