Everything is gambling now

0:00Sean Harding is a 45-year-old finance manager from Denver. So Sean found himself on this app, and he wasn't spending too much in the very beginning, maybe$100 or a few dollars a day. And then within 40 days, he was spending over$1 ,000,$5 ,000 a day. Just swiping whenever he could really get a free moment when he was doing laundry, sitting on the toilet. and it was only when his wife confronted him about this odd behavior, about some missing pages on his credit report, that he really looked at what he had spent and that number was crazy. It was$1.3 million in four months. He had borrowed money from a friend, he had taken out personal loans, and finally when all that was depleted, he had used his employer's credit card.

0:54The app is Whatnot on Today's Explain from Vox.

1:22That's C-L-A-U-D-E dot A-I slash today explained. Kelly Clarkson here with Wayfair. I know holiday magic starts at home and Wayfair makes it easy. They have everything from Christmas trees and mantle decor to outdoor lighting and inflatables that I'll use year after year. Head to Wayfair.com today. Wayfair, every style, every home. Yay! Yay! Yay! Two.

1:54Hannah Kruger is an investigative reporter at the Wall Street Journal, and she recently investigated WhatNot. WhatNot is a live shopping app. So imagine the Home Shopping Network had a baby with TikTok and eBay, and it was on your phone, and it was running 24 hours a day. This box is loaded, shop. Let's get another giveaway going. And congrats to that giveaway winner. Give me a one if you're going to participate in the bidding. To grab this once again, it's a solid 10 carry gold with Boys of Night. Live right now going in. Gorgeous oversized sweater. It has little, I guess you can say, pack. So you open up the app.

2:31There's countless numbers of categories. You can get coins. You can get cards. You can get horse tack, plants, goo, lobsters. There's any, I mean, the categories are expanding all the time. and there are sellers live auctioning off these goods in real time. Here we go, noon's in the late. Three, two, and a, what? Size large bodysuit with padding and sports bar protection. Four seconds large, three, two, one. Sold, congrats us. And there's a countdown clock that can go anywhere from three seconds to 60 seconds and it's counting down and the auctioneer is, or the seller is, hyping up the chat, as they call it.

3:11Bonkers prices, chat, bonkers prices. What an insane steal, another Sugar Squish Dragon go. And that chat is commenting like, wow, look at this, what a deal. And in the meantime, there's some music. Sometimes it's nice mellow music. Other times it's metal or EDM. Unless you want all the Pikachus. I know you could probably sell them. Depending on like the personality of the seller, there can be a various degree of moods in there. But the end result is that the last person to swipe at the bottom of the screen, which is how you bid, gets the item. And once you have swiped and you're the final person to do that, there's no real confirmation screen.

3:50We're just on to the next product. And you only really find out what you got when it shows up at your door.

4:00It started as a marketplace for Funko Pop figurines, which are these like square headed niche figurines in the collectible world. But it quickly expanded. I would say the biggest categories are sports cards and trading cards like Pokemon. That's a big, big one. And then the other one is women's fashion and beauty products. I spoke to multiple people who found themselves just spiraling into really, I mean, holes of addiction and what they liken to gambling because of especially that break format.

4:36jke you're gonna play the game yes it's tonight tonight you're done buying singles and you're gonna play the game a little bit jk why don't you make a little bit of money break format typically applies to trading cards that can be sports cards pokemon it can also happen with like rare coins but the idea is that there is a sealed pack of cards and that sealed pack is pretty expensive to buy outright. So say it's like$10 ,000. The seller will have that. And before the show starts, they'll say, okay, guys, there are 10 slots that apply to this pack. So I need 10 people to buy in at a price of$1 ,000.

5:14This is a steal, right? Like you're getting a piece of the pie of a$10 ,000 pie for only a thousand bucks. The reason that they're willing to do that is that within that pack, there might be cards that are worth$2 ,000,$3 ,000,$10 ,000. So you recoup quite quickly if you only paid$1 ,000 for that.

5:38The other side, the flip side that often does happen is that the cards are worth nothing close to what you bought in for. So people will get a card that's worth 50 bucks, 100 bucks. And at the end of it, all you have to show is kind of these small value cards. And those who have described kind of a cycle of problematic behavior say that when you lose, when you don't make up the value that you paid, you just buy right into the next one until you get out of the hole. So it's this feeling of the high, the thrill, the adrenaline rush, the, oh my God, look what I just did. When you get a card that's way over what you thought, and there's the despondency, the despair, the shame, and that feeling of, okay, I need to make my money back on that flip side.

6:30This app sounds fun in that, you know, oh, when I was a kid, I was always after this one Pokemon on card and now I can find it and even purchase it on this kind of like live auction gamified atmosphere app that I have on my telephone while I'm on the toilet or whatever. But then you talk about a story like Sean's and it's like so dark. $1.3 million in four months on this app. This app destroyed his life. Baseball trading cards destroyed his life. You spoke to the founder of Whatnot. What does he say when you tell him a story like Sean's? LaFontaine said that addiction does not register as a problem to them in their internal data, which they look at often.

7:19When we presented a story like Sean's, they repeated that addiction does not register as a problem. When you breach the topic of gambling or people accusing this app of having gambling features, that's where Whatnot definitely buttons up. They're under in pretty intense scrutiny surrounding that allegation. So they categorically reject that and they say they can't comment on pending litigation. But they do say that they created an app that had the best user experience possible and that they're new and they're learning and they're scaling and they're assessing the marketplace in real time. Are they implementing any guardrails to maybe prevent someone like Sean from ruining his life and his family's life?

8:08So while they say that addiction doesn't register as a significant problem, they also have introduced optional spending limits and watch time caps. Aha. They said that's not because of addiction concerns, but because some users said that they spent more than intended. That was the distinction that they made. They said there's other safeguards coming, such as velocity of spend alerts for sending sudden spending spikes. Some have pin locking for categories, so you have to type in a pin to go to a certain category. Some of these are self-policed, so like a watch time cap, you could presumably change yourself, even though you're the one that implemented it.

8:47They're also saying that they're going to develop some type of birthday reconfirmation option, so that way they could catch underage users, which is coincidentally how I came to know about whatnot was one of my colleague's daughters had spent over$5 ,000 in one night on Pokemon cards. Wow. And he only realized that when he looked at his credit card and was like, what is this? And he went to go sell those cards at a Pokemon, like at a card shop after the fact to try to recoup. And he could only get back like$300. Oh my goodness. Yeah. Is this just a whatnot thing? Are there other ways kids and adults can be gambling their lives away on these live auction type of platforms?

9:36So live shopping has been one of the most predominant ways that Chinese shoppers shop for a long time. And it's really kind of the wave has crested over there a long time before it has here. it really started to take off and gain traction in America in the kind of post-pandemic world and while whatnot is definitely leading the charge TikTok has their own thing called TikTok shop that has a similar kind of setup eBay is trying out stuff like this and then for the card collecting hobby specifically fanatics live is a major source to go to get your cards and experience breaks and all that. And do all of these different platforms, be it on TikTok or eBay, this live auctions style, have the sort of gamified countdown clock to make it more intense, more exciting, and perhaps more addictive?

10:29Whatnots really found a way to create a really engaging and easy to interact with atmosphere. They've also successfully merged the parasocial social media aspect. So there's relationships between the seller and the buyer. So if you keep going back to the same seller, they'll remember your name. The people in the chat will remember. So there's some folks who were like, I found, you know, friends in here. And that and Sean said the night that he used his company credit card, he was reached out to by a seller and they were like, hey, man, you got to join this. This this breaks awesome. I have a great slot for you.

11:04I'll give it to you at a discount. And he's like, I don't have any money. And that's when he realized that he had a little money. It just happened to belong to his employer. So that kind of shows that there's this social atmosphere. I mean, yeah, Whatnot is definitely leading the charge, but other companies are seeing how successful this is. And I think it's only time before they kind of merge all these aspects together in an attempt to take their market share from them.

11:35What not's not for the kids, but the games are next on Today Explained.

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15:13explained. I know when to run. I'm Vernon Silver, a senior writer on Bloomberg's investigations team. Sweet. And tell us, Vernon, what is a Skinner Box? Skinner Box is a contraption developed by psychologists in the 1930s. Here are 20 boxes, each of which contains complete equipment for studying the behavior of a pigeon or any other small animal. Where they learned how they could get pigeons or rats to click furiously at a lever. Dr. Skinner, what are you doing with this pigeon? I'm getting ready to demonstrate a fundamental principle of behavior. The apparatus is quite simple, but the principle is far-reaching.

15:59Not only in explaining the behavior of pigeons, but in analyzing human behavior. The animals knew that if they clicked on a signal that they might get one pellet and one pellet, then they changed it up. And if in intermittent intervals, the machine dispensed a ton of food pellets or none, or just one, the clicking by these animals would become much more furious and repetitive. In essence, if you have a game on your phone, chances are you have a form of a Skinner box in your pocket right now. Sweet.

17:04to these 18 and over, very obvious casino games. So we started looking at the whole universe of mobile games and how under the hood they shared these design aspects that were very much just based on a random reward system that could train you to keep wanting more. And in the piece you write about a CEO some years ago who kind of said the quiet part out loud. It was almost exactly 10 years ago And this Finnish game maker was speaking at a conference. Hello, I'm here to talk about monetization. It is about a summary of a huge bunch of behavioral psychology. He titled his talk, Let's Go Whaling. Now, in game talk, a whale, just like it is on a casino floor, is a big spender.

17:56You know, there are within gaming industry lingo, there are whales and dolphins and minnows. And the big get is this very small percent, let's call it maybe 2 % of the players who you want to keep coming back and spending more. Those are your VIPs. And the quiet part that he said out loud was, here's how you manipulate people. Some of you will probably be slightly shocked by all the tricks I have listed here. But I'll leave the morality of it out of the talk. we can discuss it if we have time later. There is a roadmap to draw players into repeated play. He outlined a lot of these psychological techniques that are, at the time, were a little controversial and now they're just like they're a business model.

18:49The most important one is the core loop. And this is the underlying mechanic of the game, where the player repeats this cycle of action, reward, advancement to a goal. You want to get to the next level, and you're just going round and round. And that could just as well be a slot machine, right? Because you're being rewarded, usually in some random way, as you work through this reward loop. What makes the games different is the next level, the meta. And that's the virtual environment that you're playing in, whether it's a battlefield or like Fairyland. That's the story. That's where you start not realizing that you're just playing a darn core loop over and over again.

19:30Then the third and final piece that almost all these games have is the live operations or the live ops. And that's where the game company engages directly with the players. You know, they'll run real-time competitions, offer chances to buy, like, the virtual in-game currency. They're setting deadlines to complete tasks. Like I said, these events are for a limited time only. You have to use them quickly before they disappear in a couple hours. One of the techniques he pointed out is the IKEA effect. This is the idea that if you do work to build something, whether it's a bookshelf or in the case of a game, trying to build a fairy princess castle or complete a virtual sticker book, that the more work you do within the game, the more emotional attachment you get to the thing that you're going to build.

20:19So that, let's say, you're running out of time. You don't have enough credits to keep playing. You don't want to lose that precious thing that you've put so much labor into. You might pay through a microtransaction, an in-game purchase in this game, to keep playing a little bit more. And that way you can get to the next level. That's sort of like the throttling, the playing with the timing and the dynamic of the game for them to maximize fun or profit or both. And in any game, you have those layers.

20:53Tell us about a game that is very clearly using these tactics that we might be familiar with. The example that we've used as part of the transition from obvious casino games to games that are dressed up like kids' games for fun is Monopoly Go.

21:15it's based according to people who've analyzed it within the industry on coin master a game that was essentially a slot machine and instead of the slot machine itself being evident you're in a board game with a very familiar monopoly properties and characters and among other things just like you do with these online auctions you're trying to get packs of stickers and you open the pack And it's very exciting if you can get the stickers to complete your book. So in a lot of ways, it's a crossover between the mechanics of a slot machine plus the mechanics of some of these online live auctions. And of course, if adults want to spend their money playing Monopoly Go, that's well and good.

22:00But I think the reason you guys are writing this story is because the fear here is that these games are really appealing and addictive for kids. right? Yeah, what we found is over the past decade, games rated for kids have far outpaced in revenue growth the ones rated for adults. Essentially, in the past 10 years, you have a tripling of the revenue in kid-rated games. When you look at the top 10 grossing games on the App store right now, they're all kids games versus three years ago when you might have had a couple adult games. There's been a wholesale shift as the industry has more and more adopted some of these measures to make kids games the most profitable ones.

22:51And so you will also see with this rise in the popularity of kid-rated games, a rise in the litigation. And in the last couple of years, We've seen a wave of lawsuits. A judge is allowing a lawsuit to move forward against Epic Games, which says the video game Fortnite is specifically designed to get kids addicted to playing it. According to court documents, the child started playing when they were five or six years old, spending hundreds of dollars on in-game purchases, displaying addictive behavior, leading to anxiety, depression and other symptoms. You know about the social media lawsuits. There's a new set of lawsuits, which is the video game addiction lawsuits.

23:38There's a whole group of them in California. There are a bunch in the federal courts, and those have only just begun. So in these lawsuits, for example, you have kids who have missed school because they are concentrating only on these games. They have rage issues. They have withdrawal symptoms when they're told that they can't play their games anymore. There's one family that had to install cameras in their house, not just so that their kid couldn't get at the games, but because they were afraid of what he was going to do to his siblings because of the rage. There are dozens and dozens of these, and every day it seems more are being filed.

24:14When we talk about the way we're making these games and the way we're allowing our kids to play these games and the way these games are generating billions and billions of dollars, and it feels like we are not protecting the children here. Was that surprising to you in reporting this out? What was surprising to me is how much so many businesses in the tech sphere are depending on games and are depending on the kind of engineering that's behind the games. they've realized that this is a way to make money. And because of that, they've gone from games for adults to games for kids. And now these same mechanics are showing up nearly everywhere, you know, in bank apps, dating apps, health management, and even ed tech, the stuff that is in the schools.

25:06It's a market. And we're all in it? Are we all just destined to be little rats looking for treats? forever? We could be, but I'm an optimist. And one of the things that we tried to do with our story that was completely ridiculous was to build a game and take all of the reporting that we had about all the techniques are being used and make them completely transparent in a game that you could play at home. We call it Subway Rat. And the idea of Subway Rat is that you're a rat in the New York City subway and you're opening up a box and getting random slices of pizza and dragging it into a pizza box to try to complete a pizza before the train comes into the station.

25:48The idea being that if you're transparent, if you can show people what's being done and they're a little more aware of it, then they can maybe take a little more control. Because, you know, you don't know the problem or the way that you're being manipulated unless you know what the techniques are.

26:09Vernon wrote Design for Addiction for Bloomberg they even designed a game for the article it's called Subway Rat and you can play it at Bloomberg.com Danielle Hewitt made our show today Amina Al-Sadi edited Gabriel Donatov was on Facts and Bridger Dunigan and David Tadishore were on the mix I'm Sean Ramos for him off to a bar in western Massachusetts for the weekend And the rest of the team includes Hadi Mawagdi, Miles Bryan, Peter Ballin on Rosen, Patrick Boyd, Kelly Wessinger, Ariana Espuru, Dustin DeSoto, Denise Guerra, Noelle King. Come on. Abishai Artsy, Jolie Myers, Miranda Kennedy. We use music by Breakmaster Cylinder.