Opportunity costs may lead attractive people to play video games less than unattractive people

There is a stereotype that gamers are physically unattractive compared with non-gamers. However, it is unlikely that gaming causes people to become less attractive, and more likely that causality runs in the other direction (that more attractive people are less likely to game than less attractive people). And that is one of the findings of this 2024 NBER Working Paper by Andy Chung (University of Reading) and co-authors. However, Chung et al. aren't interested in only identifying that there is a descriptive relationship between attractiveness and gaming, but looking at the mechanism. They propose the following:

Given that physical attractiveness confers advantages in face-to-face interactions within social or leisure activities, individuals deemed more physically attractive will face a higher opportunity cost of engaging in video-gaming. Consequently, we hypothesize a negative relationship between beauty and gaming time, suggesting that individuals considered more attractive are likely to spend less time gaming. In other words, good-looking gamers will be relatively scarce because of the higher cost of gaming that they face.

They test their hypotheses using National Longitudinal Study of Adolescent to Adult Health (Add Health), which has:

...a representative sample of American adolescents spanning grades 7 through 12 (generally ages 12-18) during the 1994-95 school year, with four follow-up waves, the most recent collected between 2016 and 2018.

Chung et al. use data from Wave I (from 1994-95) and Wave IV (from 2008), representing teenagers and adults respectively. Interestingly:

In each wave, at the end of each interview, the field interviewer rated the physical attractiveness of the respondent...

This gives a rating of 1-5 (1 being 'very attractive' and 5 being 'very unattractive') for each respondent. Given small numbers of ratings 4 and 5, Chung et al. combine those two categories together. They also create a binary indicator for 'attractive', equal to one if the rating is 1 or 2, and equal to zero otherwise. In terms of gaming:

we consider the time spent video gaming based on the interviewees’ responses to the following question:...

In the past seven days, how many hours did you spend playing video or computer games, or using a computer? Do not count internet use for work or school.

Looking at attractiveness and teen gaming, Chung et al. find that:

...the estimated coefficient for being “attractive or very attractive as a teen” is negative and statistically significant at the 10% level, while the coefficient for “unattractive or very unattractive as a teen” is negative but essentially zero statistically... The effects of looks are not negligible; for example, the difference in the incidence of gaming between attractive and unattractive teens is 2.9 percentage points, compared to a mean incidence of 54 percent.

So, Chung et al. confirm the hypothesis that more attractive teens are less likely to game than less attractive teens. Interestingly though, the effect seems to be limited to the extensive margin (whether a person games or not), and not on the intensive margin (how many hours they spend gaming), since the latter shows a statistically insignificant relationship with attractiveness. Turning to attractiveness and adult gaming, Chung et al. find that:

As with teens, good-looking adults are less likely than others to game, while the few adults rated as bad-looking are more likely to engage in gaming (although not significantly more so than average-looking adults)... Moving from the bad-looking 8 percent of adults to the good-looking 44 percent reduces the likelihood of gaming by over 10 percentage points, which is about 26 percent of the average incidence.

In the case of adult gaming, there are also significant effects on the intensive margin, since:

 ...good-looking adults who do game spend significantly less time doing it than average-looking adults, whose gaming time is, albeit insignificantly, less than that of the small group of bad-looking adults...

As at the intensive margin, the impact of differences in looks on gaming hours is substantial. Compared to bad-looking adults, good-looking adults who game spend, on average, 2.05 hours fewer doing so per week, which represents 27 percent of the mean conditional gaming time.

Next, in terms of their proposed mechanism, Chung et al. look at the effect of attractiveness on the number of reported friends, and find that:

Physically attractive/very attractive adults have about 0.4 more close friends (on a mean of 4.9) than those who are of average attractiveness. Conversely, the small fraction of those whose looks are rated unattractive/very unattractive claims about 0.7 fewer close friends than those with average attractiveness. The gap in the average number of close friends between the good- and the bad-looking is thus 22% of the overall mean.

Chung et al. also expend a good deal of effort on checking for reverse causality - that is, whether gaming reduces attractiveness. However, it does appear from their results that gaming as a teenager does not make adults less attractive, so Chung et al. are able to conclude that:

The relationship between looks and gaming does not arise because gaming makes people bad-looking: the causation appears to go from looks to gaming, not vice-versa.

Overall, if we believe the mechanism that Chung et al. propose, being more attractive raises the opportunity cost of gaming. Chung et al. note that:

...the better-looking have a higher opportunity cost of gaming as they have a comparative advantage in social interactions as an alternative leisure activity that is evidenced by more close friends.

And, as I teach in the first week of my ECONS101 and ECONS102 classes, when the opportunity cost of doing something increases, we tend to do less of it. So, attractive people game less because of their higher opportunity cost of gaming.

UPDATE: Just a couple of days after I posted this, the paper was published here (open access), in the Journal of Economic Behavior and Organization.

[HT: Marginal Revolution, last year]

Exploiting the quasi-rationality of online gamers buying loot boxes

If you've played online games at any time in the last few years, even the humblest mobile phone game, you've probably been confronted with 'loot boxes' - a virtual container in a game that, when opened, gives you a randomised set of rewards. These rewards might be cosmetic, they might be power-ups, or they might be in-game currency. Often, these loot boxes can be purchased with real money. There is increasing concern that loot boxes are a form of gambling, as the Belgian Government concluded back in 2018.

What drives gamers' willingness-to-pay for loot boxes, and are game developers able to use the design of loot boxes to induce gamers to overspend? Those are essentially the questions addressed in this recent article by Simon Cordes (University of Bonn), Markus Dertwinkel-Kalt (University of Münster), and Tobias Werner (Max Planck Institute for Human Development), published in the Journal of Economic Behavior and Organization (open access). Cordes et al. identify two key features of loot boxes. First, the odds of getting top rewards are often censored. They explain that:

As a specific example, consider the football simulation FIFA Ultimate Team, where gamers build a team of players that vary in strength. Gamers can buy packs that offer lotteries over players. The odds, however, are provided, if at all, only for a coarse set of intervals, bunching together players of very different strengths... At the extreme, the worst player in an interval is around 1000 times less valuable than the best player.

Second, gamers receive highly selective feedback on the rewards that other gamers have received. Cordes et al. note that:

In the mobile game Raid: Shadow Legends... for example, gamers receive a notification whenever another player wins a rare reward... This feature leads to a constant but selected stream of signals about rewards from loot boxes. As only rare rewards are reported, this provides them with a biased sample of the reward distribution.

Cordes et al. use an experimental design to tease out the extent to which censoring and selective feedback are associated with willingness-to-pay for loot boxes. As they explain:

Subjects repeatedly state their willingness-to-pay (WTP) for different monetary lotteries with three potential prizes, one of which is zero. In a Control condition, we transparently describe the odds of the lotteries and do not provide additional information to the subjects. We assume that this Control condition identifies a subject’s true WTP, and define overspending relative to this benchmark. We implement three treatments that capture the features of loot boxes discussed above. In Censored, subjects only learn the total probability of winning a non-zero prize, but not the exact probability of winning the highest prize. In Sample, we provide subjects with the full prize distribution and a selected sample thereof; that is, they observe the five highest outcomes in a sample of 400 draws. Finally, Joint combines both: subjects observe the censored prize distribution and a selected sample thereof. This last treatment resembles the current design of loot boxes most closely. Notably, our experimental design eliminates all features of loot boxes that may provide utility beyond winning a reward, such as a nice design or visual effects. Instead, we isolate the features of loot boxes that almost certainly do not affect a gamer’s material utility and can thus be interpreted as inducing mistakes.

Looking at their results, based on a sample of 617 respondents in the UK recruited through Prolific, Cordes et al. find that:

...both features substantially increase the willingness-to-pay for lotteries. Censoring the odds of a lottery increases a subject’s willingness-to-pay compared to a baseline treatment. Also, simply providing subjects with a selective sample of the reward distribution increases their willingness-to-pay. Combining censored odds with a selected sample increases the willingness-to-pay by 100%.

This explains why game developers use these tools. Selective feedback increased willingness-to-pay by 43 percent, censoring increased willingness-to-pay by 45 percent, and the combination of censoring and selective feedback doubles gamers' willingness-to-pay for loot boxes. All three experimental effects were statistically significant. Why does this happen? Cordes et al. examine the mechanisms underlying the difference in willingness-to-pay. Specifically, they asked research participants before each lottery how often they would win the top prize in 100 draws. When Cordes et al. then look at the results controlling for beliefs:

...the average WTPs in Censored, Sample, and Joint do not differ significantly from that in Control anymore. It demonstrates that censored odds and selected feedback increase the subjects’ WTPs by inflating their beliefs of winning a high prize.

In other words, the difference in willingness-to-pay is entirely driven by a difference in the belief of winning a top prize. Censoring and selective feedback manipulate gamers' beliefs about the probability of winning, causing them to overestimate their chances and therefore making them willing to pay more for the loot boxes. That suggests a simple solution as well: if gamers are provided with more transparent odds of winning, then that might reduce overspending. However, Cordes et al. conduct a 'robustness' experiment where they provide gamers with more information, and find that:

The additional information significantly decreases the average (conditional) belief of winning the high prize compared to Joint (𝑝 < 0.01). While the WTP in Info is also slightly below the one in Joint, the effect is not significant at the 10% level (𝑝 = 0.69). Importantly, both the belief and the WTP are significantly higher in Info compared to Control...

In other words, the extra information does appear to change the beliefs about winning the top prize, but doesn't affect the willingness-to-pay for the loot box. To me, it seems that the research participants might have intuited what the experiment was about and demonstrated that by changing their stated beliefs. However, their 'true' beliefs, as captured by their willingness-to-pay, were unaffected

Cordes et al. conclude that:

Our results support a case for regulating loot-box design, but it is not apparent what regulation would be effective. Current plans for regulation in Germany include labels for games with loot boxes... However, our results show that the design of loot boxes, rather than the random rewards they provide, encourages players to overspend. Hence, this regulation may not be effective in reducing overspending. While it should be easy to enforce a transparent display of odds, it is not clear that gamers will use this information when making their purchase decisions. Our robustness experiment, for instance, suggests that additional information may not affect WTPs. Moreover, even when learning the full probability distribution over many prizes, gamers might not act on it because it is simply too much information to be considered. Instead, regulators must find ways of communicating the odds of loot boxes in an easily understandable way...

I'm not convinced. Providing information is a great way of addressing the problem, if people were fully rational. People are not fully rational. They don't incorporate all available information when making a decision. At best, as Nobel Prize winner Herbert Simon observed, people are boundedly rational. The probability of winning the top prize needs to be made more salient for gamers, so that they will focus on that. Unfortunately, 'quasi-rational' decision-makers are also affected by positivity bias - they tend to be overly optimistic about things to do with themselves, including their probability of winning a top prize, even when confronted with the true probability. So, even if the probability is made more salient, perhaps gamers wouldn't take it into account anyway. It's all very challenging, and perhaps the best way for governments to protect gamers from overspending is to limit the number of loot boxes that can be purchased, or some other regulation.

Of course, this research was just one study. Perhaps future research will identify some silver bullet solution to gamers' quasi-rationality when it comes to loot boxes.

Why kids should play more Minecraft, but only on PC

Video games are often portrayed as dulling the senses and making gamers dumber. However, a recent paper in the journal Economic Inquiry (gated, earlier ungated version here) by Agne Suziedelyte of Monash University might have just busted that myth.

Suziedelyte argues that:

In order to win a video game, players need to plan their actions, find relevant and discard irrelevant information among all information given to them, and remember their previous actions. Thus, video game playing is most likely to improve such skills as problem solving, abstract reasoning, pattern recognition, and spatial logic, which are part of fluid, or general, intelligence...

In the paper Suziedelyte uses data from the Child Development Supplement to the Panel Study of Income Dynamics to investigate "how game playing affects two skills, the ability to solve practical mathematics problems (mathematics reasoning) and the ability to correctly read English words (reading recognition)". She employed a variety of techniques to overcome endogeneity (time spent playing video games might be correlated with other determinants of cognitive skills), and measurement error in the time spent playing video games.

While similar to the paper I discussed yesterday where the sign on some statistically insignificant coefficients was discussed (when they are not different from zero), in the preferred model specification an additional hour spent playing video games was found to be associated with mathematics reasoning tests scores that were on average higher by 9.3% of a standard deviation. To put this in context, the effect was similar in magnitude to an additional hour spent on "educational activities" (like school or homework), which was associated with scores on average 9.1% of a standard deviation higher. Importantly, video games had no statistically significant effect on reading recognition (a placebo test), which suggests that more video gaming affects problem solving specifically and not cognitive skills more generally (and allays concerns about omitted time-varying variables driving the results).

Before you encourage your kids to spend all day constructing elaborate replicas of Hogwarts using Minecraft, consider these two additional results. First, there were diminishing returns to time spent on video games:

The estimated effect on an additional hour of video game playing on mathematics reasoning ability is largest (21.7% of a standard deviation) when a child does not play any video games... Video game time is found to no longer affect mathematics reasoning ability, when the number of hours played reaches 5.5 hours per day.

So, in other words limit children's video game time to most of their waking, non-school hours. Second:

The effect of computer game playing is estimated to be 6.2% of a standard deviation (significant at the 1% level), whereas the effect of console game playing is smaller (1.1% of a standard deviation) and not significantly different from zero. The difference between the two effects is statistically significant at the 5% level.

So, make sure your children are playing Minecraft on PC, not on XBox.

[HT: Marginal Revolution, back in April]