Back in April of this year, Realtime Worlds announced the pricing model for its soon to be released MMO, All Points Bulletin, or “APB” as the cool kids say. A lot of people were looking forward to the futuristic cops vs. robbers game, but the announcement about the pricing elicited jeers from a lot of players. Here’s how the press release at the time broke it down: 1

• Buy the game for the MSRP of $50
• Play 50 hours for “free.”
• Buy additional game time using one of two options:
• $6.99 for 20 hours OR
• $9.99 for unlimited hours during the next 30 days 2

Upon hearing this, the nerd rage was palpable on some forums. For sure, this was partially over the fact that APB was to have any monthly fee AT ALL, despite that being par for the MMO course. But there seemed to be two other targets of the virtual hand wringing. First, the play time included with the retail product was doled out in hours (50 of them, to be precise) rather than the traditional 30 days of unlimited play. Second, the $6.99 for 20 hours of game time seemed a bitter pill to swallow, apparently because people didn’t want to pay by the hour. People seemed to willfully ignore the fact that the game DOES include traditional 30 days of unlimited play for one flat rate option, though. 3

A typical fan reaction to APB's metered payment plan.

Now, I’m actually not 100% sure as of the time of this writing what APB’s pricing models will look like when the game launches. I can’t find anything on the official site, and Realtime World’s designer Dave Jones recently told GamePro magazine said that “gamers won’t have to commit to any kind of monthly subscription fee or utilize a traditional microtransaction system.” I’m not sure what that means, but regardless I think it’s still interesting to focus on people’s reaction to that initial press release in May. Why were they so turned off by the pay by the hour options?

As it sometimes turns out, psychology holds the answer. But let’s get there by way of a discussion about cell phones.

Phones and MMOs

Earlier this year I needed a new cell phone but my wife forced me to admit that I didn’t really need anything fancy. So I went shopping and, being a completely rational decision maker, I selected one of those cheap, pay-as-you-go phones where you buy prepaid minutes. The plan I selected essentially worked out like this:

1. Buy the phone for the MSRP of $50
2. Get $35 worth of air time included for “free.”
3. Pay $0.10 per minute for all calls, $0.20 per text message
4. Buy additional air time as needed

Does that look familiar? It’s not too far off from APB’s “$6.99 per 20 hours” option, but more on that in a minute.

I could have easily gone for a $60 a month plan that let me spend unlimited hours on the phone, only taking breaks to send unlimited text messages. Or I could have sought out a plan that gave me hundreds of minutes per month, which equates practically unlimited minutes for my purposes. And not only would I have had plenty of company, many of us would probably have been overpaying. A 2009 article in the LA Times 4 reported on a study showing that the average user was paying over $3.00 a minute when you considered how much they paid and how many of their plan’s minutes they actually used. But not me! Bravo! Hooray my precious rationality!

Only it still doesn’t feel right. Because I know that every time I flip that thing open to make a call I have to pay $.10 a minute I’m actually loathe to use the phone. I keep calls as short as possible, I groan when people ask me to text them, and when I’m traveling I’ll actually stalk my wife on Facebook until she comes online so I can ask her to call me on her phone.

A Bias for Flat Rates

The reason for my discomfort is something called “the flat rate bias.” Generally, people like flat rates and don’t like being on a meter. 5 But why does the flat rate bias exist? Well, as is often the case with psychology, it’s turtles all the way down 6 because that’s just how people are.

A bit of work by psychologists Daniel Kahneman and Amos Tversky known as “prospect theory” does a pretty good job of taking us down ONE turtle, though. One thing that Kahneman and Tversky found was a “law of diminishing sensitivity.” Basically, this means that the amount we wince at any one reasonable losses eventually flattens out. If you graphed it for a random person, it may look something like this:

Figure 1: Artist's rendition of diminishing sensitivity to losses. Actual curves may vary by person and situation.

The idea is that our comparative displeasure at different losses ramps up quickly but then levels off. This is known as “diminishing sensitivity” 7 So, for example, we experience a bigger jump in aversion between a loss of $5 and a loss of $10 than we experience between losses of $1,005 and $1,010. It’s related to the reason why we’ll feel great about saving $.30 on a tube of toothpaste, but probably won’t bother to drive across the street in order to save $3 –ten times as much!– on a flat screen TV. 8

One implication of diminishing sensitivity is that we experience greater subjective pain from multiple losses than we do to one big loss of equal value. Answer honestly: implications for your insurance aside, would you be more pissed about three $30 parking tickets over three days or one $90 ticket? Researchers have posed exactly that kind of question, and found that people generally prefer the one big loss over multiple little ones. Why? Because of diminishing sensitivity to losses:

• Pain of $30 loss = 100 “pain points”
• Pain of $90 loss = 250 “pain points”
• 100 X 3 = 300
• 300 > 250

This is the same reason people buy unlimited or excessive minutes on their cell phone plans. We’d rather have one big cut that seems less painful overall than endure a thousand (or 900 + unlimited mobile to mobile) cuts as the minutes fall away one by one. As a side note, it’s also the reason that rent-by-mail services like GameFly are so appealing relative to renting games one at a time. It’s preferable to sweep all our losses into one big, monthly pile and feel like we have “unlimited” rentals for that price than it would be to rent one game at a time by the day or even by the week. Ditto for Netflix and DVDs. Yet how many of us have let games or DVDs sit around for days or weeks before getting to them? Personally, I know that by my calculations renting “The Hangover” from Netflix just cost me over $11 because I held on to it for 5 weeks before finally watching it last night. Not exactly a great deal.

Flat Rate Bias and APB Revisited

So, armed now with this information about the flat rate bias and diminishing sensitivity, let’s circle back to one of the APB pricing described in that April press release, particularly that “$6.99 for 20 hours” option. My guess is that most people won’t go that route because of the flat rate bias. It’ll just be too painful to feel every individual hour pass away and think that it’s another one your prepaid hours gone forever. In contrast, people who paid just a little more can feel comparatively less pain because they experience just one loss instead of a parade of many smaller losses that feel like they add up to more.

The funny thing is, though, that like those people paying over $3.00 a minute for their cell phone calls and me with my rented copy of “The Hangover,” there will be some number of APB players who OVER pay by selecting the $9.99/month, unlimited hours plan. Because they play fewer than 20 hours in a month but think it’s worth it not to have to feel like they’re “wasting” limited minutes all the time.

In actuality, Realtime World should probably be commended for giving its players the option to save money with a metered plan, especially since it’s in their financial interest to take advantage of the flat rate bias and encourage those people to over pay. Yet they’re not. I asked MMO game designer Nik Davidson of The Amazing Society what he thought, since he had presented a pretty great talk at this year’s Login conference, in part about this very topic. ” I think what they’re doing is brilliant,” Nik said. “People love having options. Being able to choose between two ways of paying and feeling good about the choice they made makes it much more likely that they’ll make a choice at all. I think a relatively small minority of their users will choose the rated plan, but simply having the rated plan will encourage more people overall to play and pay.”

I couldn’t agree more. Now, if you’ll excuse me, I have to go psych myself up to add $20 to my prepaid cell phone balance.