Paula Neves, Product Manager at Square Enix, breaks down the principles behind behavioral economics and how they can be applied to monetize free-to-play games - for both in-app purchases and ads.

What is behavioral economics?

“There are two professionals who have done a lot of research on behavioral economics, Dan Ariely who wrote Predictably Irrational and Robert Cialdini who wrote Psychology of Persuasion. They and others decided it would be a great idea to combine psychology and economics, and especially the branch of psychology called behaviorism. 

In school, most people study the Pavlov dogs and conditioning, and Skinner boxes - all of that is behaviorism. The theory states that behaviors are reflexes and emerge due to various stimuli from the environment. Dan Ariely says that while decisions seem irrational, there is actually a predictable pattern to that irrationality.”

Three categories of purchasers

“There is a friction that comes with each decision to buy something because it’s painful to spend money. It all comes down to how to reduce this friction. There are three categories of spenders, defined by the level of friction in the purchasing moment. 

  • Tightwads are people who are susceptible to that friction. They will spend less because it’s more painful for them to spend.
  • Spendthrifts are the opposite, they don’t mind spending as much. 
  • Unconflicted are halfway in between.”
Behavioral economics in the real world

“Let’s say you’re walking down the street and the Hari Krishnas give you a book and say, ‘take it, it’s for free.’ Well, it’s not really for free - nothing is. It’s all about reciprocity. When you’re gifted something, you feel like you should give something back. You feel bad for accepting that book and not giving them anything. Games use this all the time - they give you lives, and you feel like you have to return the lives that you receive.”

Behavioral economics for ad monetization

“As long there's an in-game economy, behavioral economics works. These techniques are better used for IAPs because it opens up the breadth the things you can do. But rewarded video is so ingrained in the economy, so you can apply the principles to learn where to better show your rewarded video, how to layout the screen for it, the best moment, and how to ask for their view.

It depends on the genre in terms of the type of users. A lot of hyper-casual games, in the beginning, were just ads. But now they’re adding subscriptions and collectibles. The audience of that game is not used to doing purchases, so a bigger percentage of them would be tightwads. It also depends on geo. But you can still use behavioral economics in even hyper-casual games, as long as there is rewarded video, for example.”

Decoy pricing in mobile free-to-play games

“With decoy pricing, someone’s decision to pay for one thing over the other changes after you present them with a similar but less attractive option. It works well for subscriptions and pricing. This is a very basic technique. The Economist, for example, did this. They offered three subscription plans to their readers: the online version would be $59, the print version would be $125 and then the print and web versions together would also be $125. That makes no sense. But it all of a sudden $125 seems like a bargain. 

Dan Ariely even conducted a study and found that 84% of people went for print and web, 16% would buy the online one, and of course, 0% would choose the last. Then when he removed the middle option, 68% of people began to choose the first option. 

Anchoring and priming

“People don’t register a price as exactly as it is. They’ll register anchors - this is expensive, this is cheap. Even in UA, we know the LTV of our users and an idea of the CPI, and we anchor our CPI and anything different we’ll say it’s expensive or cheap. 

We anchor ourselves so we can make decisions more easily. There’s less of a cognitive friction when deciding. Interestingly, anchor pricing is frequently irrational. 

There’s an interesting experiment in which volunteers would be asked to price something they have no idea about, say gym bikes. But before that, they’d be asked to write their social security numbers down on a piece of paper. It was found that the larger the last number of the social security, the more people were willing to pay for those gym bikes.

In your in-game store, in whatever option you want to push more, you can say 3,000 of these were already sold. This will serve two purposes: first, it will have a big number to anchor, and second, it will serve as social validation as well. It has to be true, though, of course.” 

Another ‘weird example’ of behavioral economics

“The fewer syllables the better. Pricing your game at $3.16 is better than $3.82 because it’s five syllables vs. seven. Gamers see your prices in the store, say the prices in their head, and because it takes them longer to say seven syllables, there’s more friction. Some game developers even remove the dollar sign.”

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