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Abstract

The digital gaming business has changed in the last years. Digital games are no longer just products. They developed into services. People play games not only on a stationary device, but on mobile devices, too. The change of gaming devices also had an impact on game design. Competition between mobile digital games mostly takes place at a download price of zero. Today the Freemium monetization method is the dominant monetization method. Players of digital games often have to go through a core loop by repeating the same tasks inside the game. The stability of the virtual economy inside the game affects the game’s core loop. This paper discusses the role of instability in virtual economies in the context of core loops. A small instability inside a virtual economy can increase revenue of a digital game. Players tend to stay in a game because of sunk cost fallacy. If instability inside a virtual economy happens for a too long time players will quit playing and revenue will decrease.
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Research Article
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How instability in virtual economies of mobile digital
games drives and ruins profit
P.C. Lohse1,*
1Andrássy University, 1088 Budapest, Hungary
Abstract
The digital gaming business has changed in the last years. Digital games are no longer just products. They developed into
services. People play games not only on a stationary device, but on mobile devices, too. The change of gaming devices
also had an impact on game design. Competition between mobile digital games mostly takes place at a download price of
zero. Today the Freemium monetization method is the dominant monetization method. Players of digital games often have
to go through a core loop by repeating the same tasks inside the game. The stability of the virtual economy inside the game
affects the game’s core loop. This paper discusses the role of instability in virtual economies in the context of core loops.
A small instability inside a virtual economy can increase revenue of a digital game. Players tend to stay in a game because
of sunk cost fallacy. If instability inside a virtual economy happens for a too long time players will quit playing and
revenue will decrease.
Keywords: Freemium, mobile gaming, sunk cost fallacy, instability in virtual economies, core loops
Received on 04 November 2019, accepted on 20 December 2019, published on 10 January 2020
Copyright © 2020 P. C. Lohse, licensed to EAI. This is an open access article distributed under the terms of the Creative Commons
Attribution licence (http://creativecommons.org/licenses/by/3.0/), which permits unlimited use, distribution and reproduction in any
medium so long as the original work is properly cited.
doi: 10.4108/eai.13-7-2018.162632
*Corresponding author. Email: philipp.lohse@andrassyuni.hu
1. Introduction
The way people play mobile digital games has changed.
Mobile digital games became more popular over the last
years [10]. Mobile digital games are no longer a product.
They developed into services [10] [12]. Mobile digital
games with the highest revenue in the apple app store,
Google Play Store or others often are available for free
[7]. The majority of mobile digital games are available
without a price per download and make money via in-app
purchases [7]. Competition between digital mobile games
mostly takes place at a download price of zero. Players
pay for premium features inside the games. This
monetization method is called Freemium [5]. Today
Freemium is the dominant monetization method for
mobile digital games [6].
In July 2016 98.5 % of the top 200 Apple App-Store
applications by revenue were available for free [7]. Only
1.5 % of the top 200 Apple App-Store applications by
revenue had a price per download [7]. Players can
download the applications for free and test the game. If
they like it, they can get an advantage in the game by
purchasing a virtual currency or other premium features.
The game publishing companies do no longer need a high
amount of downloads to achieve high revenues.
Competition between game publishing companies for new
users mostly takes place at a download price of zero [7].
Today revenue of digital mobile games is driven by in-
app-purchases. An in-app-purchase is a purchase that is
done inside the application to use special premium
features. In July 2016 99 % of the top 200 applications by
revenue in the Apple App-Store offered in-app- purchases
[7].
Users of mobile gaming applications often repeat tasks
inside the game. The game starts a trigger, which leads to
an action of the player. The game rewards the player for
completing the action. This reward can be invested by the
player so that he can have an advantage in the next run.
Eyal called these four stages a core loop[9].
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Mobile gaming applications sometimes take advantage of
dark gaming patterns and behavioral economic theories to
motivate players to buy premium features inside the game
via in-app-purchases [2] [3] [4] [8] [9]. The focus of this
paper is the role of instability in virtual economies. The
over expansion of a virtual hero’s traits leads to instability
of a game’s virtual economy.
Players run through a loop while playing a mobile gaming
application[9]. Game publishing companies can set up a
virtual economy inside a game in a way so that people
have to run through this loop more often or spend more
money. If players have to run through this loop too fast
and too often to compete with others they might stop
playing the game. Sunk cost fallacy might be a reason
why they continue playing even though they don't like the
game anymore [3]. This contradiction will be discussed in
a case study of the mobile gaming application "War of
Nations". "War of Nations" is a mobile gaming
application that was successful in many different
countries some years ago. Over the years the game has
lost it's top position within the apple app-store. This paper
will have a closer look at why the decline of the ranking
for this particular mobile gaming application happened.
After a literatur review, the research question will be
introduced. To answer the research question, a theoretical
framework and the role of commanders inside the game
need to be discussed. The theoretical background will lead
to research method and possible biases. A first view of the
collected data is presented in the chapter descriptive
statistics. Based on the theoretical framework and the
collected data a hypothesis will be formulated and a
regression analysis will verify it. In the last chapter
conclusions and further research approaches will be
discussed.
2.Literature review
Zagal, Björk and Lewis published a paper on "Dark
Patterns in Game Design" [8]. In their paper, the authors
deal with dark game patterns. Dark game patterns are
defined by the authors as a negative experience for the
player, which is intentionally generated by the respective
game company. Zagal, Björk and Lewis define monetary
dark game patterns in a way that any in-game purchases a
player regrets are caused by dark gaming patterns. In dark
gaming patterns the player loses track of how much
money he has already spent. If the player is not sure about
what exactly he is buying or how much he has to buy to
reach his respective target within the game, then there
may also be a dark game pattern. Games are no longer
just products. They changed to services. People use games
over a longer period of time and the game publishers keep
updating the game. In 2014 Oscar Clark has discussed this
phenomenon in his book Games as a service. How free
to play can make better games“.
There is research about similarity between real and
virtual worlds. The field of human- computer interaction
is discussed in the book Online Worlds: Convergence of
the Real and the Virtual“ by Bainbridge et al.
In 2007 Friedman et al. published a scientific paper
about sunk cost fallacy. Their paper is about a laboratory
experiment. In their experiment they used a computer
game that confronted players with different variations of
sunk cost.
In 2014 Dimitar Draganov has published his book
Freemium mobile games - Design & Monetization“. In
his book he discussed how game design can keep people
interacting with a digital game over a longer period of
time and how to convert players of a game into paying
customers.
B. F. Skinner has laid the behavioral economic
foundation for variable payoffs with his research into
operand conditioning. His research indicates that a
variable payoff is a stronger motivator for people than a
predictable payoff. B. F. Skinner was known for his
experimental setup in a box, which he used to research
operand conditioning. This experimental setup has been
included in literature under the term Skinnerbox. Variable
earnings are common in digital games. This can be a
motivation for playing a game longer.
N. Eyal has discussed the concept of the core loop in
his book "Hooked". Core loops are composed of the four
phases trigger, action, (variable) reward and investment.
A player goes through these phases when he is playing a
game. According to Eyal, these four phases are behavioral
and can be used to allow a player to interact with a game
for as long as possible.
3. Research question
Most of the relevant literature discusses the behavior of
humans in digital games and virtual economies on a
general level. Only a few studies like Friedman et al in
2007 published about specific experiments and not on a
wide unspecific general level. This paper focuses on an
empirical case study. The advantage of an empirical case
study is that conclusions can be made not only on a
specific level. The presented research in this paper is
close to a field study.
The central research question is, how instability in the
virtual economy of the digital mobile game "War of
Nations" has affected the revenue over time.
4. Theoretical framework
Players often develop an emotional connection to a
game. This emotional connection is not only determined
by the fun a player has from playing the game. The longer
a player plays a game and the more money a player
spends on a digital mobile game the more rational it
becomes to him to spend even more time and money on
this game. The more time and money are spent on a game
the higher are the player's sunk costs. Quitting a game will
confront the player with the maximum amount of sunk
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costs. It is rational for a player who already is at a higher
level in a digital mobile game to continue playing this
game even if another game would give him a higher
amount of happiness. These players consider sunk cost
and have an emotional connection to the game because
they build up their own account and already have
achieved success in a game. The longer players play a
digital mobile game the harder it becomes for them to
abandon this game. Some players will continue to play
even if they don't like the game any more. Their choice is
between two negative payoffs. These choices are the sunk
cost of abandoning the game and the cost of staying inside
the game.
In behavioral economics this effect is called the sunk
cost fallacy. Sunk cost fallacy is an effect that describes
the choice between two options with different sunk cost.
Only one option is possible to be taken. It often seems to
be rational to people to use the option with higher sunk
cost. Even if the option with smaller sunk cost gives the
person a higher value. Staying inside the game will
increase the sunk cost for the player. The incentive to stay
inside the game increases the longer a player already
plays the game or the more money he already had spent.
If a player is confronted with loss in value of his
account there is a huge stimulus that a player, who already
spent a longer time playing a game or already spent
money on a game, will increase his ambitions inside a
game. Loss in valuation of a gaming account can occure
because of events like instability inside a virtual economy.
Instability in a virtual economy can happen in many
different ways. One example is the announcement of a
new very strong hero. If the new hero is a lot stronger
compared to previous heroes, he makes these older heroes
completely worthless. Players will have to get this new
hero as fast as possible to have an advantage over other
players. In the medium run all players will need this new
hero to stay competitive inside the game.
The stimulus of loss happens because of sunk cost bias.
Usually an additional gained unit gives the user a positive
increase in utility valuation. The marginal utility unit is
positive, but decreases as shown in the following figure.
Smaller gains are relatively higher valuated than larger
gains. A loss in utility should be the same, but it isn't.
There is an asymmetry around the neutral point. People in
general overvalue losses compared to gains. This is shown
by the red line in the figure 1.
Figure 1. Sunk cost bias (own figure based on
Kahneman, Knetsch and Thaler)
Transferring the sunk cost bias in the context of sunk
cost fallacy in mobile digital games, this leads to the
result that a small amount of instability inside a virtual
economy is needed to increase profit. A small instability
inside the virtual economy of a digital mobile game
confronts players with a disproportionately amount of
loss. Players loss aversion can increase profits of game
publishing companies. The higher the instability inside of
a virtual economy the higher will be the loss the players
are confronted with. By increasing the time spent on the
game the players are confronted with higher sunk costs.
The game design only has to trigger the loss aversion of
the players. Loss aversion leads to a phenomenon called
sunk cost bias“. A loss of the players achievements can
happen due to instability in virtual economies. The
success a player has achieved is reduced compared to the
moment the instability started. The prospect of loss is a
more powerful motivator for peoples behavior than the
prospect of a gain. The overvaluation of loss can stop
people from quitting the game. This can lead to sunk cost
fallacy. People have the choice between quitting the game
or spending even more time and / or money on a game.
This can conduct to higher profits for companies. It
becomes profitable to confront players with loss.
Instability in a virtual economy is a way to do so. Players
can continue to play or quit the game. Quitting the game
means the maximum amount of sunk costs to the player.
Players will avoid this option as long as possible. Some
players will even continue to play, while not having fun,
but to avoid negative emotions. This is a social
undesirable status.
5. The role of commanders inside the
game
War of Nations was first released in June 2013. In this
mobile digital game players compete against each other or
in teams. Players build up an army and bases. There are
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different units. Each kind of unit has a certain unit value.
Buildings are inside bases and can be levelled up to a
maximum level. Players hit other players’ bases with their
army. They try to win temporary events inside the game
and earn rewards. These rewards are usually set up to
increase the players’ or teams’ strength and give the
player or the team an advantage in future events. Players
and teams also compete in battlepoints. Battlepoints are
the sum of total unit value destroyed by a player or his
team.
Commanders are virtual heroes and the most important
type of boost for the player's army. Each commander has
traits for attack, damage and leadership. The stronger the
commander's traits, the stronger is the player's army while
attacking or defending. There has been a significant
increase in the strength of available commanders in the
mobile digital game "War of Nations" over the last years.
Players need to collect experience points for each
commander. This is how commanders can reach higher
levels. Commanders of the same kind can be merged. The
stronger the two merged commanders are, the stronger the
new commander becomes. The level of the commander
increases by merging commanders up to a maximum
level. In the relevant literature this mechanism is called
complete gacha“. This means that players actually need a
specific number of commanders of the same kind to get
one really strong commander that can reach the maximum
level. Players need to earn these commanders by winning
events or making in-app-purchases.
In this paper, the average sum of commander traits per
quarter is used as a proxy variable for instability inside
the game’s virtual economy.
6. Research method and possible biases
The company behind War of Nations“ was asked on
email and many other ways to support this academic
research by publishing statistics about commander traits.
They did not respond. To get an estimate about the
increase of commander traits social media and game
specific forums have been looked up for information
about commander traits[12] [13] [14] [15]. The earliest
data about commander traits have been found from the
2nd quarter of the year 2014. This research focuses on the
time from 2nd quarter of 2014 until the 4th quarter of the
year 2018.
Based on the data about each commander's traits
average sums per quarter from the 2nd quarter of 2013
until 4th quarter 2018 have been calculated. The ranking
is an average out of all available countries from
appfigures2 in the top grossing gaming categories for
2 List of all available countries on appfigures with data for
War of Nations“: Angola, Arabic Emirates, Armenia,
Australia, Austria, Azerbaijan, Belgium, Bermuda,
Botswana, Brazil, Brunei Darussalam, Bulgaria,
Cambodia, Canada, Cayman Islands, Colombia, Costa
iPhone and ipad. For each quarter an average rank has
been calculated. There is no public data available on how
large each countries market for War of Nations“ actually
is. Therefore no weighting for given countries has been
done. The average sum of commander traits per quarter
has been calculated based on the data from social media
and forums[12] [13] [14] [15]. The rankings are indicators
for the popularity and the revenue of the game. The
change in commander traits compared to the previous
quarter is an indicator for the loss aversion the game tries
to confront the players with. The stronger the current
commander gets, the weaker older commanders become.
There are unobserved variables in the following
regression analysis. There is no public data available on
when a sale happened inside the game. This might have
an impact on the game’s top grossing ranking. Sales
within other games might have a negative influence on the
game’s top grossing ranking.
Other economic factors are not assumed in the model,
because the following model is using global average data
for the game’s top grossing ranking. Macroeconomic
variables should be added to the model in case that the
ranking for different countries is compared. This is not the
case in this study.
Based on these information the following research has
been done. Player boosts also affect commander traits and
since stronger players are more likely to post information
of their commanders there might be an upwards bias in
the data.
7. Descriptive statistics
The collected data are presented in the following
figure. The left y-axis of the figure 2 shows the ranking in
the category Gaming Top Grossing“, which is an
indicator for the revenue relative to all other competitors.
The right y-axis of the figure 2 shows the commander
traits in 100k units. Data on commander traits are
available from 2nd quarter of 2014. On the x-axis the
quarters from the 2nd quarter of 2013 until the 4th quarter
of 2018 are shown. Each point in figure 2 gives the
Rica, Croatia, Cyprus, Czech Republic, Denmark,
Dominican Republic, Ecuador, Egypt, Finland, France,
Germany, Ghana, Greece, Honduras, Hong Kong,
Hungary, India, Indonesia, Ireland, Israel, Italy, Jamaica,
Kazakhstan, Kuwait, Lao Peoples Democratic Republic,
Latvia, Lebanon, Luxembourg, Malaysia, Malta, Mexico,
Namibia, Netherlands, New Zealand, Nigeria, Norway,
Pakistan, Panama, Papua New Guinea, Peru, Philippines,
Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia,
Singapore, Slovakia, Solomon Islands, South Africa,
Spain, Switzerland, Thailand, Trinidad and Tobago,
Tunisia, Turkey, Tuvalu, Ukraine, United Kingdom,
United States, Venezuela, Vietnam
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average per quarter for the iphone / ipad category or the
average sum of commander traits per quarter.
The introduction and growth phase can be seen from
the 2nd to 3rd quarter of 2013. From the 4th quarter of 2013
until 2nd quarter of 2014 the maturity phase of the product
life cycle happened. After this the decline happened. The
decline stabilized, when the average sum of commander
traits started to increase. The average sum of commander
traits is the proxy variable for the game’s virtual
economy. In the 2nd quarter of 2016 a big decline in the
game’s ranking occured. The big decline happened nearly
a year after the instability started. After the huge drop the
ranking stabilized between rank 350 and 450.
Figure 2. War of Nations: Average Ranking of all
available countries and average sum of commander
traits per quarter (own figure, data based on
appfigures[1], social media and game forums [12]
[13] [14] [15])
8. Hypothesis
The previously discussed leads to the hypothesis that
an increase in commander traits might have happened too
quick in the past of the mobile gaming application "War
of Nations". A short term instability might lead to an
increase in revenue in short term, but a long term
instability of a virtual economy leads to a decrease of
revenue.
Players of mobile digital games tend to be happy about
the introduction of new contend to the game. This usually
leads to a positive impact of new content to revenue. The
positive effect of instability in the virtual economy of the
mobile gaming application “War of Nations” happened
between the 3rd quarter of 2015 and the 1st quarter of
2016. Although there was a positive impact of instability
in the virtual economy a better ranking couldn’t be
achieved, but the ranking stabilized. From the 2nd quarter
of 2016 the negative effect of instability in the game’s
virtual economy took over and the ranking started to
decrease.
The players had to go through the game’s core loop
more often than they felt comfortable with. This means
that even though there is a sunk cost fallacy over time
players will quit the game, because the new virtual
commanders are a lot stronger than previous virtual
commanders. The new game deciding content deflated the
subjective value of older virtual commanders. This
process should be able to be seen in a decrease of the
ranking in the category "Gaming Top Grossing".
9. Regression analysis
The question that has to be answered is, how the impact
of the average sum of commander traits per quarter to the
average ranking of the mobile gaming application "War of
Nations" per quarter in the top grossing category changed
over time. There will be a significant change in ranking,
which happened once in the data. To model this one time
change, the functional form is assumed to be like this:
Ranking is the dependent variable. Commander is an
independent variable for the average sum of commander
traits per quarter. Commanderhigh is a dummy variable
that equals 1, if the average sum of commander traits is
above 100.000. Commanderhigh is the variable that gives
further information about the one time effect of a high
average sum of commander traits on the ranking. The
value of 100.000 for high commander traits as a dummy
variable has been chosen, because this value gives the
highest R2.
If there is a negative effect of commander traits
towards the ranking of the mobile gaming application
"War of Nations" in the top grossing category the
independent variable for Commander and
Commanderhigh need to be positive. Both have to be
statistically significant. The dummy variable
Commanderhigh shifts the intercept and gives information
about when the effect of the average sum of commander
traits per quarter has an even stronger impact on the
ranking. To avoid serial correlation generalized least
squares has been used. The regression result for the top
grossing iPhone category is the following:
The R2 is 95.03 and the adjusted R2 is 94.75. The P-
values are 0 for Commander and Commanderhigh. Given
a 5 percent significance level, this means that there is a
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statistical significant effect between these two
independent variables and the dependent ranking variable.
Figure 3. Regression plot quarter (own figure, data
based on appfigures[1], social media and game
forums [12] [13] [14] [15])
The figure 3 shows the regression function using
generalized least squares. The moment the proxy variable
for the game’s instability in the virtual economy rises too
high the ranking drops. In this functional form the slope
before and after the drop in ranking is the same.
If the average sum of commander traits increase by one
unit and all other factors stay constant, the ranking in the
category Gaming Top Grossing“ increases by
0.0004188. This means that the number of the ranking
gets higher. The game gets a lower ranking in the
respective stores. When the average sum of commander
traits per quarter reaches 100.000, the intercept increases
by 136.4343, because of the dummy variable
commanderhigh.
The hypothesis can be confirmed. Players of the
mobile digital game War of Nations“ stayed inside the
games core loop for three quarters after the instability
inside the virtual economy occured. Temporary positive
effects can be interpreted. The downwards trend of the
gaming application could be slowed down for three
months. In 2016 the negative effect of instability in the
virtual economy started and the game’s ranking dropped.
The drop can be seen in the dummy variable
commanderhigh.
After three quarters players anticipated the introduction
of new stronger commanders inside the game and the
devaluation of previous game deciding content. The
change in players anticipation about new content is the
central reason why the drop in ranking occured.
10.Conclusion and further research
approaches
Some mobile digital games are designed to strengthen
effects of loss aversion and sunk cost fallacy. An
exploitation of these effects can happen by a high
instability inside a virtual economy. This instability can
last for a short, medium or a long time period.
A high instability in a virtual economy is a way to
exploit players. The ranking stabilized during the first
quarters after the introduction of the instability inside the
virtual economy. If instability in a virtual economy
happens for a longer period of time or increases too high
the game looses it's players. Players are the customers of
game publisher companies. Customers might get excited
about new content in the first moments, but adding more
and stronger game deciding contents will not increase
customer satisfaction in medium or long run. In the
medium or long run, there is no other way for players to
react to things like a high instability in virtual economies
than quitting the game. This means the maximum amount
of sunk costs for the players. A socially undesirable
situation for some players can be the consequence,
because some players will avoid to quit playing as long as
possible. For some players this can mean to continue
playing without satisfaction.
A small amount of instability inside a game’s virtual
economy might be necessary to keep a game interesting
for new players. Mobile digital games usually reward
staying in the game for a long time. The longer players
continue to play the stronger their accounts get. This can
make it hard for players to compete inside a game with
players who play a game for a longer period of time. A
small increase in commander traits and the overall virtual
economy can help to make old rewards useless after some
time. In this way a small increase compared to previous
time periods inside a virtual economy can help to balance
a game.
The presented model in this study has limits. The effect
of the commander variable might be higher in one country
compared to other countries. Unobserved variables might
have an impact on the ranking, too.
Instability in virtual economies is a field that deserves
further research. There is a research gap at the moment.
Game publishing companies can take advantage of their
customers by confronting them with loss. One important
question that needs more researchers' attention is how
huge the socially undesirable effect for customers of
mobile digital games is.
At the moment publishers of mobile digital games are
not faced with many regulations. There are discussions
about regulating lootboxes. In addition to the discussed
topics in this papers there are a lot of asymmetric
information in the business of mobile digital games.
These asymmetric information are worth a further
discussion, too.
Corporate social responsibility can be a solution to
increase customer satisfaction and reduce socially
undesirable situations for customers. A code of conduct
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for human game design can be a step in the right direction
to avoid a socially undesirable status for players. A
limitation of instability in virtual economies of mobile
digital games can be a part of such a code of conduct. An
exploitation of player’s loss aversion is a socially
undesireable situation. The reduction of this exploitation
is recommended.
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... This suggests that females and males show no real difference in terms of the impact of virtual rewards on these dependent variables. Previous studies suggested that game items, virtual weapons, and money can increase gamer performance, which leads to increased customer loyalty and purchase intention (Hsiao and Chen 2016;Lohse 2019). In this regard, both female and male users were motivated by the perceived reward when developing game loyalty and purchase intention as virtual rewards serve as an incentive to maintain player loyalty. ...
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Despite the rapid growth of the mobile game market worldwide, how intrinsic, and extrinsic, motivation factors affect user loyalty and in-game purchase intention across genders remains unknown. To address this research gap, this cross-sectional study examined the antecedents of loyalty and in-game purchase intention through the theoretical lens of the motivation theory and investigated the gender effects in the Chinese mobile game environment. Using a survey method, this study collected data from 605 experienced players of King of Glory in China. In addition, the proposed research model was examined by the partial least squares-structural equation modelling (PLS-SEM). Our findings reveal that perceived playfulness, a competitive price, and virtual rewards, significantly affect user mobile game loyalty and in-game purchase intention. We confirmed the moderating effects of gender on the relationship between motivational factors and mobile game loyalty, offering a better understanding of how males and females vary in the development of mobile game loyalty. Our findings offer valuable insights for mobile game practitioners to develop more effective design and strategies for motivating user loyalty and in-game purchases.
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Augmented reality (AR) games such as location-based games add virtual content on top of the real world. We investigate why playing these games feels meaningful to players by focusing on the dimensions of imagination and sociality. We theorise a structural model that we test with data collected from a global sample of players of the popular AR game Pokémon GO (N=515). Our findings show that nostalgic feelings about Pokémon increased imagining AR content in the real world. Surprisingly, using imagination in this way was a much stronger predictor of affection towards the fictional pokémon creatures than nostalgia. The affection towards the fictional creatures, in turn, increased the meaningfulness of playing. Regarding the social factors, community identification and social self-efficacy increased players' sense of meaningfulness of playing. As our study's main design implications, we highlight the importance of socially shared narratives and harnessing the players' imagination to support a sense of meaningfulness of playing.
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Martin Schneider is Professor of Economics at Stanford University. His research interests lie in Financial and Monetary Economics.
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