Wednesday, January 23, 2013

"You Won!" - The sneakiest trick used by poker machines

Okay, as soon as I wrote that I realized that there’s probably dozens of sneakier ones I don’t know about, but this one I have at least observed. Poker machines are designed to frame the gamble so that you think you're winning more often than you actually are.

Consider how an economist would represent a poker machine-type gamble:

Probability          Total Payoff

0.7                          -1

0.15                        0

0.05                        1

0.02                        3

0.01                        5


What this representation makes clear is that 70% of the time, you lose money, 15% of the time you break even, and 15% of the time you win in varying amounts.

But losing 70% of the time is too depressing. So they choose to present it differently, namely:

Probability          Revenue Payoff

0.7                          0

0.15                        1

0.05                        2

0.02                        4

0.01                        6


This distinction is subtle but highly devious. Most importantly, the chance of you ‘winning’ under this new metric is now boosted from 15% to 30%. And who doesn’t love that! 

So how do the machines encourage you to follow the second way of thinking about the gamble?

The first is crude but effective - they glaringly displaying the text ‘You Won!’ when you get the 15% outcome. To anyone with two brain cells to run together, this is nonsense – you broke even, you didn’t win. But they encourage you to feel that rush of winning even when they’re not paying you any money.

The second way they do it is that the 1 unit gets subtracted as soon as you press the button, before the spin is decided. Only then is the payoff determined, and this is done in a separate step. The logic is like you’re “paying” every time to buy the gamble, like paying for the game itself. Then the payoffs are what you get afterwards

This alternative way of phrasing it obscures the fact that you’re losing 70% of the time, as opposed to just not winning. In prospect theory, this matters a ton – people really care about the first penny of losses. But here, they encourage you to put the money you pay initially into a separate mental account, as just a base cost of playing. The “payoffs” to the game, are thus only zero or positive. Just ignore that steady drip-drip-dripping of money, it’s just the cost of doing business.

The honest poker machine would be forced to display equally brightly the text ‘You Lost!’ every time you rolled and lost money, and report payoffs at the time of the gamble realization so that people identified more cleanly which are the loss states. If you got that rubbed in all the time, maybe you’d react differently.

But then you wouldn’t play the poker machines as much. And frankly there’s dozens of ways to get people to gamble less, but nobody’s much interested in investigating what they are. Still, at least Richard Thaler would approve of this one. 

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