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

1. BEHAVIORAL ECONOMICS 101 FOR GAMBLING SERVICES
PEOPLE & GAMBLING

2. PEOPLE OFTEN STICK WITH WHAT THEY
HAVE OR WHAT THEY KNOW – EVEN IF
THERE ARE BETTER ALTERNATIVES
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.

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. THE FRAME OF
REFERENCE MASSIVELY
INFLUENCES THE
CHOICES 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. 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. MONEY IS TREATED AND VALUED
DIFFERENTLY DEPENDING ON WHERE IT
CAME FROM OR
HOW IT’S KEPT
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.

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. “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

9. People are 67% more likely
to stop smoking if their
spouse does.
36% more likely if a friend
WE TEND TO COPY kicks the habit.
PEOPLE WE TRUST 25% more if a sibling quits.

10. 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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11. WHAT DRIVES OUR DECISIONS?
 Reasoning
 Logic
?  Inertia
 Laziness?
 Self interest  Peer pressure?
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12. BEHAVIOUR CHANGE THEORY
TWO BROAD APPROACHES
Rational/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. THE BRAIN’S TWO SYSTEMS
Rational 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
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14. It is rarely advisable to view attitude change
as a pre-cursor to behaviour change
COI Communications
THIS REPRESENTS A FUNDAMENTAL
CHALLENGE TO CONVENTIONAL WISDOM
IN MARKETING
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15. MINDSPACE
A BEHAVIORAL ECONOMICS MODEL
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16. MINDSPACE
MESSENGER 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 actions
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

17. 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?)

18. INCENTIVES
Gambling is full of incentives:
1. Losses loom larger than gains: “Loss Aversion”
Remove barriers of failure to incentivize action

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

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

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. 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. NORMS
 Building cultural reference points to establish ways
of thinking

27. NORMS
 Use norms to create
social interest:
 Most popular bets
 Bet of the Day
 Top 5 bets

28. NORMS
 Use norms to create
social acceptance:
 The National Lottery
 The Health Lottery
 Scratch cards /
Practice money

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. 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. 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. 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. 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. SALIENCE
 It is hard to create relevance and differentiation
in gambling.
 Every book maker is using the same technolgy
platforms:
 OpenBet
 Global Draw

35. PRIMING
 Our acts are often influenced by unconscious cues
 Verbal / Audio  Images / feeling
“Noise of winning” “Chips make it a game”

36. 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.

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. 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. 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

40. SIGNING CONTRACTS – VISIBLE
COMMITMENT

41. 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

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. 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. 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. 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. 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. THANK YOU
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