Wealth Effects and Social Casino Gaming

In this post, I want to emphasize the importance of wealth effects even for empirical data.  I have used the wealth effect implicitly or explicitly several times already, so I hope to clarify it in the remainder of the post.

Let's begin by thinking about social casino games.  One advantage they offer over land based games is that you can perform experiments by offering slightly different versions of the game to Players in what is essentially real time.

This should be great! Now we can use the basic t-tests that we learn in every intro to statistics course ever taught.  Except very quickly we start to run into some serious problems, too much seems to be statistically significant.  Another problem is that holding the Return to Player fixed, while putting more money in one feature necessarily means taking money out of the other...so which changes drove the results?  To address these kind of behavioral questions we have to turn to theory.

Rather than construct the experiments by forcing the expected value of the Return to Player to be equal, I would try to establish a wealth effect.  What I mean is that say I had a 95% Return to Player game.  What would be the major behavioral results of giving them the exact same game at 96%, 97%, 98%...? We can learn this by changing how much the Player pays to play the game. This has the advantage of affecting all features of the game equally.

The simplest result would be Players realizing they are getting an x% premium, which induces them to play y% more spins.  But I might expect that some segment of Players are betting below the maximum, playing less expensive games, or even avoiding volatile games altogether. (Bear in mind that the current Social Casino Player has on average less of a taste for volatility than does a Vegas gambler.) For these "corner solution" Players, after giving them a premium we might even see them play less total spins but shift towards a more expensive/volatile experience.

Once the range of responses is established for the various segments of the Player base, then we have a standard with which we can compare our slightly different games.  In essence, what we are doing is asking how does jumbling the money in the game around compare to just giving money directly to the player.

The open questions to me are: how stable will the Player segmentation be?  what is the best way to establish the wealth effect...should the Player know she is getting a discount...should it be based not on what you pay but maybe a random but frequent small award?  This is the kind of research program that could help us test the hypotheses of the previous posts.