Tuesday, February 25, 2014

Gamified Personal Finance

What is gamification? You could describe it as the extension of principles of game design, with or without the language of games themselves, into new territories. Gamification in this sense tries to transform tedious tasks into fun ones, or at least into less intimidating tasks.

Jane McGonigal, in her polemic Reality is Broken, outlines a kind of phenomenology of gameplay, complete with gameplay-specific emotions (Fiero, Epic Win, etc.). For McGonigal, gamification is about introducing these feelings into socially necessary or useful practices. And perhaps you could think of gamification as finding ways to introduce all kinds of positive feelings – not just those associated with gameplay – into socially necessary or useful practices. In this approach, gamification is about turning the means to an end into ends in and of themselves.

A slightly different way of understanding gamification, however, is simply as a specific set of conventions for communicating an incentive structure. The incentive structure may be backed up by storytelling and rhetoric, by quantifiable status within a community, by money or some other kind of claims on goods and services, or perhaps by nothing at all. The conventions – effectively an ensemble of data visualisation/conceptualisation techniques, such as a character class system, an array of interrelated stats, the chance to level up, the accumulation and completion of quests and side quests, bosses to defeat, achievements to unlock, and a leaderboard to scale – originate with computer games, but don’t have any necessary link with them.

Here’s an illustration of how gamification, understood in this second sense, might be used to create a new kind of current account product. Most banks are inherently unstable insofar as they loan long and borrow short. They face a maturity mismatch problem. Most deposits tend to be short term. Most loans tend to be long term – mortgages, for instance. The bank can’t turn up at somebody's house, type in its PIN, and withdraw the £100,000 equity it owns in that person's house.

Did you know you can now bank online?

In a gamified current account, a depositor would be asked on a regular basis to log in and set withdrawal requirements for the next time period. For the depositor, the aim of the game is to choose withdrawal requirements which are as low as possible, and then stick to them. There will be financial rewards for doing this successfully, and financial penalties for doing it poorly.

To take a very simple example, say a current account holder has $100 on deposit. The account holder decides that they will never require more than $40 net throughout the next quarter. They set the slider to $50 (giving themselves a $10 buffer) and click “commit.” So for the next three months, $50 is on loan to the bank at a very low rate of interest as a sight deposit – the account holder can withdraw it whenever they want – and the other $50 is a kind of short-term bond, earning a higher rate of interest. If the account holder withdraws more than $50 over the next quarter, they are effectively selling part of their bond before it reaches maturity – i.e. at a lower value.

When the account holder does not actively set the slider, the account eventually reverts to an ordinary current account, until whenever the account holder next chooses to play. There could be one or two other mechanisms: unlocking achievements to give the account holder one-off liquidity boosts, etc.

As a side note, there could even perhaps be a social / community aspect to this system. For instance, account holders could ratchet up a score when they transfer their excess liquidity to account holders who need it (who have underestimated their liquidity needs for the period). I am intrigued by the possibility that different ways of communicatively integrating a group of borrowers and lenders, and different ways of allowing them to visualise and conceptualise their individual and collective interests, might achieve different levels of robustness, and different levels of resistance to panic.

The current account, in other words, would be transformed into a flexible, intuitive portfolio of different kinds of debt, whose mechanisms would be mostly traceable to the bank’s need to make maturity matches.

Clearly there are a large number of issues – to do with game design, implementation, legal underpinnings, nudge economics, and wider social impact and ethics – and were such an idea to be developed by commercial retail bank I would treat it with outright terror. In principle, however, it seems like a promising way of mitigating the sharp maturity discrepancy at the heart of the fractional reserve banking system.

And as a final note, one possible area of application would be in the construction of an alternative community currency – both in terms of attracting users by the novelty of the system, and perhaps also in making a lower reserve ratio possible, allowing a relatively larger money supply to exist on the basis of a given injection of conventional currency.

Earlier: science fiction of gamification. See especially Tim Maughan’s entries on that list for a bit of perspective on shiny new ideas for gamification.

Elsewhere: SMBC on gamification.

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