FOR 5392 - TP 5: Firms’ Response to Non-Directed Attention Allocation

Basic data for this project

Description

When facing economic choices, information on the available options is typically vast while consumers’ capacity to process this information is limited. Consumers’ attention, at least in parts, is non-directed and therefore automatically guided toward eye-catching features of the choice environment. Little is known about firms’ incentives to exploit such attentional imperfections of consumers. We investigate non-directed attention allocation for the example of a particularly quickly growing and important market that is currently in the focus of competition authorities around the world, the gaming market. Nowadays, many successful video games feature “loot boxes” that, just like gambling, offer random rewards to be used in-game (with respect to the “FIFA” game such a reward would be, for instance, a virtual Lionel Messi). In 2020 alone, such loot boxes generated $15 billion of worldwide revenue. There is an increasing public concern, however, that video game developers design loot boxes in a way to make gamers “overpay” for the typically small chance of getting the reward. We single out three features of loot boxes that might result in gamers overestimating the probability of winning the reward and, consequently, paying too much. First, developers typically do not disclose the odds, but provide gamers only with an interval-censored distribution of rewards. Second, in many games there is a public announcement whenever someone wins a reward, resulting in gamers observing a biased sample of the reward distribution. Third, high rewards are additionally disclosed in a spectacular visual presentation. In a series of papers, this project seeks to investigate three issues. (i) In laboratory as well as field experiments, we identify the features that drive the success of loot boxes and analyze in how far these features are exploitative in nature. (ii) We ask to what extent firms use these features  strategically in order to raise users’ willingness-to-pay. And (iii) with the help of a theoretical model and with market experiments, we investigate how transparency regulations or improved competition in the market can raise welfare.