Hello everyone! We are back again today with another edition of Splinterland Economics - a series in which we introduce a basic economic concept and then apply it to Splinterlands. If this is your first time reading, just to tell you a little bit about myself: my day job is in an unrelated area but I consider myself a little bit of economics nerd - I read a little (or maybe way, way) more news than I should, double majored in econ, and am obsessed with optimization. I love the way Splinterlands is equal parts card game and resource allocation game. My goal with these articles is to share a little bit of what I know with you all.
Today's subject is one that I hesitated to write about for a while for a couple of reasons. First, it is a fairly broad subject area. And second, it isn't the type of topic where you can present a simple equation or explanation and call it a day. Today I will be doing my best to provide an introduction to the field of behavioral economics, with the goal of occasionally picking a topic from within the area to go into more depth in future articles.
What is Behavioral Economics?
If you have taken an economics class or two but haven't jumped fully into the area, you have probably taken classes in microeconomics or macroeconomics. There, you learn that people make rational decisions and that you will oftentimes describe supply, demand, or other quantities with sets of equations. Well, it just so happens that in the real world, it turns out that not all decisions are made rationally. Behavioral Economics combines psychology with more traditional economics in order to more closely explain the decisions people make in real life.
You may have heard of and "ideal world" in modeling or the concept of "rational expectations" - these are both related to the assumption that people will generally behave rationally, make optimal decisions, and do so consistently. This means that over time markets will price everything properly, there are little to no arbitrage opportunities, and that everyone will act more or less "ideally". Behavioral Economics looks at how and why this doesn't necessarily always happen in the real world. If you have heard of "nudging", the effects of biases, loss aversion, or decision overload, then those are just a few examples of factors that behavioral economics attempts to explain.
How do we apply it to Splinterlands?
I'm sure you have probably noticed this, but Splinterlands is a game played by humans, who are making decisions about how to play and allocate their resources. And yes, yes, I am well aware that there are rather large numbers of bots playing in ranked matches. But there is (at least as far as I know) still a human behind each bot who decided to code or buy the bot, and has decided to invest in a collection or account for that purpose. The game economy runs according to humans around the world and our occasionally poorly functioning monkey brains.
This means that behavioral economics and its concepts can be applied at every level of Splinterlands, from the company itself and developers, to the markets for NFTs and crypto, to your very own decisions of what to do with your money and other assets. Are you curious about why a particular aspect of the Splinterlands user experience or economy was designed and is behaving the way it is? Well, it is possible that something has gone overlooked, but there is a decent chance that it is related to behavioral economics concepts.
For example, the login screen when you first navigate to the Splinterlands website can be seen as as a nudge to play and do your daily quests, go and check out tournaments or events and to participate in brawls - all activities which the developers want to encourage in order to increase daily engagement and community. Do you hear a player who joined 6 months ago complaining about how DEC rewards from ranked play use to be much higher when they first joined? Okay okay, to be fair everyone will complain about that - but it is also in part based on their anchored expectations and biases from when they first started playing.
Why should we care?
It is important to remember that markets will not always behave rationally. Assets may be priced incorrectly, people may be doing sub-optimal activities. And while I am relatively new to crypto, this seems to go even more so in the crypto world than it does in real life. If you do your research, and the math, then don't be afraid to take advantage of profit making opportunities that you think you may have found. After all, some of the biggest whales in the game made their fortunes this way!
It is also important to remember to look at your own behaviors and determine whether they are optimal or not. And if they aren't, then why? Behavioral economics concepts can help us to identify why we may be doing things which aren't optimal. Once we know what we are doing, we can then make more informed decisions as to whether we should correct those decisions, or to continue doing them in order to feel better about our actions.
Finally, this last one is for anyone lucky enough to be in a position to design something that people will be using - a market, a tool, or managing your own guild, for example. Did you set up some sort of system and have unanticipated results? You may not have taken some behavioral economic concept into account. Understanding different aspects of the way human decision making and behavior work can help you to make changes in the way your ideas are presented or rewarded in order to achieve your desired effects.
Thank you so much for reading all the way to the end. Interested in seeing some more of my writing in the future? Be sure to give me a follow! In the meantime, if you'd like to see some of my recent posts:
Just Keep Swimming - Using Kulu Swimhunter in Battle! - This past week's battle challenge, featuring Kulu Swimhunter!
I Made it to 15K Collection Power, and You Can Too! - Tips for Setting and Achieving Goals - How to effectively set goals and achieve them, in Splinterlands and in your life.
Splinterlands Economics: Moral Hazard - An introduction to the concept of moral hazard, and how being aware of it can help us in Splinterlands.
Thinking about giving Splinterlands a try but haven't signed up yet? Feel free to use my referral link: https://splinterlands.com?ref=bteim, and be sure to reach out to me if you have any questions!
All images used in this article are open source and obtained from Pixabay or Unsplash. Thumbnails borrowed with permission from the Splinterlands team or made in Canva.