Entrepreneurs are the Ultimate Gamers

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As game designers, mechanic lingo is part of our everyday communication with each other. Action points, movement, risk and reward, and loss avoidance. When my husband first mentioned the goal of a game was loss avoidance, I rolled my eyes and laughed.

“Isn’t playing to win the reason for all games?”

“Duh, no?? Don’t you remember Arkham Horror?”, he told me. “Loss avoidance victory conditions are one of many mechanics.”

Loss avoidance game strategy is a last man standing type of game. Chess, Checkers. War, Tag are all games where the winner is the last man is standing. It also uses some behavior economics in game play with a few universal human behaviors:

1. Hoarding syndrome -Losses have a greater impact on preference than gains. Players feel much more dissatisfaction losing points (or pieces, etc)  than satisfaction when they gain points.

2. Endowment effect – This is a behavior phenomenon that states people assign more value to something they own than to something identical they don’t own. For example, my dice set is much better than yours, even though they were bought at the same place on the same day.

3. Sunk Cost Fallacy – The idea that what you have already invested in something has future value and worth, when the truth is your decisions are based on the emotion investments you’ve made. The short story – the more you invest the less willing you are to abandon ship.

In the game world, there is no better example than Farmville to prove these theories correct. The status quo bias comes into play when you are unwilling to give up your current plot of land to start over, even though the joy is in the building. You want to minimally maintain the income your current farm brings in. The endowment effect can be seen by hanging onto your own special sheep rather than selling it at the market even though one of your “friends” will surely send you a new sheep as a gift. The sunk cost fallacy is why people log in, over and over, to make sure their current crops don’t die from neglect. People will check their farms multiple times per day rather than start over with fresh crops. If that is impossible, people will even invest real money to make their crops last longer so they can check in less often. Marketing brilliance capitalizing on human behaviors are shown in every aspect of Farmville.

Loss avoidance is studied in entrepreneurial behavior. Entrepreneurs are typically optimists, risk takers, and visionaries. New entrepreneurs are not driven from a fear of failure. In behavioral economics terms, the status quo they need to maintain is low, their endowment effect is nearly zero, and the sunk cost fallacy may actually be a positive bias rather than a negative one. In other terms, new entrepreneurs often have little to lose and much to gain.

In contrast, when examining the behavior of successful, well established companies, overcoming loss avoidance in the game is much more difficult. Though they have all they worked towards, such as market share, revenue, and recognition – they also have more to lose. They have to maintain a status quo, they have their endowments. Suddenly, the strategy of taking risks and the sunk cost fallacy can be paralyzing when decisions are made. Nobody want to risk their empire they have been building for ten years to risk it all for new ideas and approaches. Growth slows, and market share is lost to new ideas and more passionate entrepreneurs with nothing to risk.

Being in the new entrepreneur category ourselves,  we are fueled by passion and driven by dreams. The goals we have are the same as most entrepreneurs – get our product to the public, focus on our message, create a business and life around our own ideals. Right now we are playing the game for the goals mechanics, not the loss avoidance. In a sense, we are living Arkham Horror everyday.

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References:

1. On the Psychology of Loss Aversion: Possession, Valence, and Reversals of the Endowment Effect LYLE BRENNER YUVAL ROTTENSTREICH

2. Entrepreneurship and Loss-Aversion in a Winner-Take-All Society John Morgan University of California, Berkeley Dana Sisaky Erasmus University Rotterdam 

SANJAY SOOD

BALER BILGIN*

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