Thursday, August 30, 2012

Front loaded incentives using fantasy currency

As a software product considered "optional" to use in most settings, we have to really worry about incentives for people to participate, both as part of our software (game mechanics) and what we advise our clients to do outside the software, i.e. recognition for participation, prizes, etc.

With that in mind I've been thinking a lot about an article that appeared on TechCrunch a couple weeks ago about a study done at the University of Chicago regarding the level of performance of public school teachers under two different incentive programs.

In the first group, teachers were rewarded at the end of the year based on their student's performance on a standardized test. For every percent improvement over their school district's average, they would receive up to $4,000.

In the second group, teachers were told they had been given $4,000 at the beginning of the year and that number would be reduced based on how their students did. For every percentage point improvement over the average, that would be the amount of money they could keep.

As you may have guessed from the title of this blog post, the teachers who had something to lose performed better. Their students were on average 10% better than the district average. The teachers who were given a bonus offer at the end of the year showed no improvement.

Here was the money quote (no pun intended):

"The results of our experiment are consistent with over 30 years of psychological and economic research on the power of loss aversion to motivate behavior: Students whose teachers in the 'loss' treatment of the experiment showed large and significant gains in their math test scores," said List, the Homer J. Livingston Professor in Economics at UChicago.

Current "best practices" about incentives in software usage suggest a diverse approach of rewards, multiple leader boards, a certain rate and style of marketing and status communication, and development of community and interaction.

While there are many things we could improve in Inkling, we're already doing a lot of this with mixed results. These types of incentives seem to appeal to a certain psychological profile, but not to a majority, so application providers, including us, are left with just trying to get a maximum number of registrants so we can get a respectable number of active users. The research about teacher's performance is encouraging because they were surely a very diverse pool of people psychologically, yet this one basic "carrot" seemed to work incredibly well.

So how can those learnings be applied to Inkling and perhaps more broadly to application development in general?

Here are some ideas that have been rattling around:

  • Since everyone starts out with 5,000 inkles, we could introduce a "tax" that charges you on a monthly basis based on your usage of the software. If you've made X number of predictions, you get a "tax exemption" but if you don't, you start to lose your inkles and have less predictive power in the application.
  • We could generalize this behavior for whatever behavior we're trying to promote: logging in, making comments, sharing the site with a friend, etc.
  • Perhaps "tax" has too negative of a connotation. We could replicate what the University of Chicago did with the teachers and give people a bonus at the beginning of each month that they lose unless they make predictions, comments, etc.

We would have to be careful though that we're not incentivizing behavior we don't want, i.e. people just going in and making "garbage" predictions just to avoid paying the tax or losing some of their bonus. Which means a tax or bonus structure would have to be based on people's performance. But conveniently, performance can't be evaluated unless they exhibit the behaviors you want them to anyway.

More generally, perhaps the next generation of incentives in software applications will introduce their own currency specifically for this purpose. For example, applications are always bugging you to complete your profile or to do Facebook Connect and usually just show a status bar or reminder text that you "haven't completed 100% of your profile." What if instead when you signed up you were given 1,000 of fantasy money that you begin to lose if you don't do these things within a certain period of time. And if you do do them, the fantasy money can be cashed out for stuff: a waiver of AirBnB fees on a rental, an extra InMail in LinkedIn, an extra 1GB of space in Dropbox.

Continuing with the profile example, I'm sure these companies have quantified what it means to have someone have a complete profile in real dollar value because they can be more effectively marketed to. There would be a nice business case therefore to do this if it means 10% more profile completions assuming the economics work.

Companies like Kiip are kind of already doing this, but with earning "recognition" as you achieve things in applications. The fantasy currency enables the more effective reverse approach of front-loading the incentive and it's yours to lose. Currency is also much more flexible because you can begin to use it in other parts of your application - "earn X by doing Y."