APPLYING BEHAVIORAL
ECONOMICS AND COGNITIVE
SCIENCE TO THE BUSINESS
OF UNDERSTANDING
CONSUMER BEHAVIOR
The popularity of vintage video
arcade games like Pac-Man,
Donkey Kong, Q*bert, Defender
is coming back.
Video gaming arcades started to lose popularity around 15 years ago. Young people
moved onto a completely new generation
of much more sophisticated, challenging,
and diverse set of smart-phone and console
games. So beginning around 2003, arcade
owners got the idea to combine nightclubbing with video games. There is a nostalgia
trend, about people growing into the phase
of life that includes more pressing responsibilities and yearning for the simpler days
of having time to play video games. There
is another aspect of this trend towards
combining video arcade games with drinking establishments. Venues like drinking
establishments appeal to the consumer desire
to meet and socialize. But the activity of
meeting and socializing is greatly enhanced
by adding activities like games. “A lot of
people appreciate having another stimulus at
a bar besides drinking as much as they can,”
explains the owner of one of these bar-cumarcade establishments. The future, though,
will likely involve games that encourage
more social interaction than video-monitor
games. Putting lottery gaming machines into
age-restricted entertainment establishments
would seem to be a good first step. Creating
game-styles that promote social interaction
would be a good second step.  
How do we do that? Academia is beginning
with re-assessing some of our basic assumptions about human behavior. The tenor of
the academic research is aptly captured by
the title articles in the May issue of Harvard
Business Review From Economic Man to Behavioral Economics and Fooled by Experience. 
Traditionally, the premise of classical economists was that people base decisions on
rational assessments and self-interest. Since
irrational behavior is harder to measure and
model, it was treated as an aberration and
50 // PUBLIC GAMING INTERNATIONAL // July/August 2015
there was little attempt to understand and
analyze the drivers of irrational behavior. 
It was only in the last decade or so that it
came to be recognized that the irrational
component to our thought process was not
aberrational but in fact integral. Books like
Daniel Ariely’s Predictably Irrational: The
Hidden Forces that Shape Our Decisions (and
precursor to Ariely, Nassim Nicholas Taleb’s
Fooled by Randomness and Black Swan) dig
into the way humans actually think, how
we process information, base decisions on
that information, and ultimately behave.
The literature now recognizes that “cognitive bias” is not aberrational but quite
fundamental to how we behave. Dan Ariely
delivered a great keynote speech at the EL
Congress in Oslo. And he has a great website www.danariely.com.  
Investment flowing into
research in Cognitive Science and
Behavioral Economics
From Hudson Alley to Silicon Valley, investors are captivated by startups leveraging
research in cognitive science to apply to
the business of understanding consumer
behavior. The timing of the success of these
new behavioral science ventures is coinciding with recent investments from academia
into the expansion of cognitive science
programs. Gaining insight into the underlying reasons why consumers behave the way
they do is expected to impact not just the
nature of advertising and promotion, but
also product design.
Some key take-aways of the book
The Gamification Toolkit: Dynamics,
Mechanics, and Components for the Win
Gamification is the science of using game
design elements and techniques to motivate
and engage people. It involves understanding
psychology, design principles, and how data
is leveraged to constantly improve the process. We’re engaged by games. We respond
to some of these game elements not because
it’s some cool new idea that someone came
up with, but because it relates to our basic
human drives—our motivation for mastery,
our desire to be connected to something
broader than ourselves, our desire to connect
with others, our desire for achievement, etc.
The idea is not difficult to grasp, but it is
not so easy to implement. The techniques
are powerful indeed, but how they are used
and applied can be complicated. Clarifying
the profiles of the population that you want
to engage, defining the objectives, designing a systematic process and approach,
integrating feedback loops to drive process
enhancements, isolating and deploying the
specific game elements … all this requires
a serious understanding of the science and
management of the project. The biggest
pitfall in using gamification is thinking that
all you have to do is drop in some gamifying elements.
The adoption of gamification tools seems
to comply with the cycles associated with
the adoption of technological innovations.
Lots of hype in the beginning (which was
about four years ago for gamification).
Consultants and practitioners apply the
ideas and they fall short of expectations.
Then a lull during which pundits pronounce the new innovation to be dead or
at least over-hyped. Then the innovation
is refined and improved and it starts to
gain traction again as its benefits become
more apparent. As more research is done,
as more data becomes available, as “best
practices” are identified and implemented,
the results become more predictable and
the innovation becomes more actionable.
Academia has struggled to find a place
for this topic because it falls in between
the borders of different fields (Marketing,
computer science, organizational behavior,
management, etc.). The “Gamification
Toolkit” at least keeps this powerful idea
on our radar where, I would submit, it
certainly deserves to be.
“Lean retailing” describes the method
of using store venues as idea labs,
a vehicle enabling the observation of
consumer response to new products and
promotions. Physical stores provide the
ideal testing ground for new ideas, enabling
retailers to isolate tests to specific markets,
provide controls for comparison, and gain
an empirical perspective that is not so easily
acquired in the online world. Walmart and
Amazon are migrating from opposite sides
of the distribution channel mix towards the
brick-and-click model. ■