Rethinking token incentives for consumer adoption

[Music] [Applause] thank you nice to be here so I am G to be speaking about incentives today because when we first started Icebreaker we wanted to re-engineer the way that online advertising works by giving users The Lion's Share of the revenue that they generate and giving them better ads and we first asked do advertisers want this the answer is yes then we asked is it technically possible the answer is yes using some cool magic with zero knowledge proofs and decentralized identity but then we asked do users want this and although people do like receiving good ads when they're good when you pay them money for it it changes things very much and specifically to get high value people to do stuff you can't just pay the money for it not on a consumer scale and so we've been obsessing for a long time over how do you incentivize people using more powerful mechanisms than we're used to in crypto so today I'm going to go through a couple different lessons that we've learned and then try to frame them in very practical ways as we're building products in crypto for how we can use them so first of all like why do we even care obviously incentives tokenomics they're big things that we talk about a lot in crypto and one of its superpowers is in figuring out how to do decentralized incentives but also from a different perspective if you're just a technologist the ROI from studying why humans do the things they do is actually very high relative to studying the new tech that's coming out because as Tech changes quickly its users do not and by that we're products of hundreds of millions of years of evolution before we even became primates and then humans and all of this is basically baked into our operating systems which do not upgrade on a 18month basis or in crypto 18we basis and yet we're used to in crypto talking about tokenomics and just think of the word tokenomics it comes from economics right and yet economics is actually a terrible model for thinking about why people do the things they do and how to get them to do things there's a whole body of research that has basic basically shown that economists models of human behavior are wildly wrong and actually there's a whole new field of research that has become more popular with things like uh thinking fast and slow and some of the popular um books on behavioral psychology where actually people are very irrational and you can ask them the same question but in a different way and they will answer completely differently and so just recognizing that people are irrational will allow us to start thinking about how to use incentive systems better so before we continue we're actually going to play a game today and we're going to do a live exercise but may I ask everybody who's sitting past the fourth row to actually move forward please but not too close nobody should sit here really this is just so that the talk appears more packed cool all right so now we're about to do a live exercise where hopefully we will experience some of these uh human incentives ourselves so what I'm about to do is I'm going to ask you to scan this QR code which should take you to a type form that I've set up and so if everybody can scan this QR code and then I'm going to tell you to do something and that is going to govern how you answer the type form so if everybody could please and if you really really don't want to play the game that's okay but it should display as a type form and that'll allow you to to do the rest of the exercise all right does anybody need more time okay great also please come forward if you'd like to to play the game and sit in one of the second through fourth rows so yeah don't don't go forward yet all right just scan it can you sit in one of those seats please all right and also if you want to play the game you also have to sit in one of those chairs sorry I'm a little bit of an introvert so I want to keep this okay and thank you for humoring hopefully this will be an enjoyable experience for everybody today uh as we learn about why we do the things we do all right so now if you could please reach under your chair and see what you have and try not not to look at what everybody else got and now just look at it and answer the questions on the type form please and if if you don't find anything you should find something taped to the chair if you don't just raise your hand and Emma can help you okay [Laughter] okay did anybody have trouble with the type form no okay apparently type forms real time integration is not working let me try again okay so the Google sheet integration appears to have stopped but but let me see okay great we have 28 submissions okay so I'm just going to do a little bit of spreadsheet magic right now did the type form not work for anybody okay and now you can look at what other people got ah nice okay here we go all right hold on I'm just gonna put this down do a little bit of magic great this was supposed to live populate in the sheet but let me see if I can fix it there we go all right so now here's what we're going to do all right what's about that great so what we had underneath was basically a live test of different things and so some of you got a card who got a card yes all right and who got Monopoly money and who got something else I got something else something else I'm sorry about that I like Chate all right so there are oh thank you okay I think I I'm now done with my spreadsheet jockeying for for now so thanks everybody for um bearing with me all right all right good 29 respondents so for people who got the card this is a Genesis Icebreaker card and the question was how much money could we give you to buy it back from you and the median number that people gave was $25 now other people who received Monopoly money got a different question and the question was how much money would you pay to receive one of those cards and the median answer looks like it was between 50 and $2 so this is what's known as the endowment effect which is fairly well known in behavioral psychology where when you give somebody something they now value it more than if you give them the opportunity to get something and so that mere fact of just giving somebody something and then asking them can I take it back frames things completely differently than saying would you like something so this is a really really powerful principle that I think we can start thinking about how how we use it in crypto systems even if you're giving out tokens or even if you want people to buy your tokens it can be a lot more powerful if you find a way basically to put them in people's hands and then allow them to sell them back or uh to ask them if they actually want them than just asking them if they want them before they are actually in their wallets now there was oh thank you now there was another little hidden experiment in here that I don't think we had a large enough sample size but um there were two denominations of Monopoly money here $1 and $100 and I think um because we only had like six to nine in each group we didn't really see anything manifest but there is another psychological effect known as an anchoring effect anchoring bias and what this does is basically you could ask somebody how much are you willing to pay for something and if before you ask them that you say I'm just going to start rattling off six-digit prime numbers that have nothing to do with the question at hand you now will anchor them to guess a higher number or to use a higher number and so we sometimes see that with like token denominations I think this is another really powerful principle that um is something to keep in mind that even though you might be using fungible tokens the way that you frame things can have a strong impact all right well thank you for playing the game and by the way you can keep those cards so the point of that is to show that even among really smart people there are ways to play with incentives and I'll just pause and let everybody appreciate this cartoon because this is one of my favorites so this is an old school XK CD talking about nerd sniping where you can find the same person who might geek out and design the perfect tokenomics model and be like this is exactly how we motivate somebody you like hold up a sign asking a really academically interesting problem and all of a sudden they'll just like go off on that and you've actually just motivated them to do something that you couldn't do with like a $100 worth of tokens before which brings me to the next point that when comparing to utility utility is actually at the bottom of the spectrum when it comes to motivating people and particularly high value people to do things and and what's higher than that Curiosity we have a colleague who frequently gets nerd sniped by things and yet there are so many protocols that would probably spend thousands of dollars just to have him think about their protocol design for a little bit but we'll just like tee up a little idea for him and not in a a manipulative way of course but um you know he just Geeks out on that stuff and so if you can find a way to tap into people's love of curiosity and of stories then that is a really strong way to build something more than just utility and what's higher than utility and curiosity you see it every single day if you took a flight here you experienced this in the airport in so many different ways signaling like the these boarding groups are just one way of artificial signaling status social status in public but there's so many other different ways like the things that we wear the places that we go the clothes the schools everything is basically a complex game of social signaling and again this is all coming back to Evolution over 100 million years like if you think about which weapons this guy was probably carrying around was it the sharpest or most lethal one or was it the one that conveys the most status my money would be on the ladder so compared to curiosity and utility signaling is the most potent of them all and so all of this basically um is what I was geeking out on over the last year and a couple weeks ago I put together this framework which is not complete but is meant to basically be a better way of thinking about different types of incentives when we are trying to design distributed systems to basically bootstrap adoption from the ground up instead of you know as a a centralized uh team and so at the kind of bottom is is the utilitarian the utility and the money types of incentives which don't get me wrong they can be quite powerful on their own but if we can start going Upstream these are much more powerful incentive systems experiential where gambling is kind of between utility and experiential and this Taps into people's storytelling and love of stories and Journeys and experiences and then even even higher than that are the social types of incentives which are around access being able to reach people or organizations being able to signal that access or that status and finally kind of at the top is our fear of missing out like fear of desertion by the tribe which has been ingrained into US almost like the strongest fear that we have socially uh throughout human evolution too because throughout evolution if you got left behind by your tribe you were done so you know we went through all that and we were thinking about okay how do we now build a product around that and build into some of these these systems and how do we give people these incentives in exchange for let's say using our product or viewing actually good ads in a privacy Safe Way which was our initial thesis but but then I was speaking with my wife a couple weeks ago on this topic and she said you know what I kind of like the ads that I get on Instagram even though I know that they're spying on me and that was very strange to me because I had been thinking about everything in the wrong way when I posted that article on mirror which by the way that that framework is a mirror post that uh we released a couple weeks ago it was all based on this idea that you give people stuff in order to get them to do stuff but actually in the case of Instagram advertising that's an example where people actually want to receive those advertisements if they're good and they're actually willing to be spied on by meta because they still like getting those good ads and Tik Tok is kind of a similar example so at the top of everything is sort of this notion of serendipity of like finding something that you didn't even expect and if you can find a way to give people that that is like the Pinnacle of incentives that is what we're seeking even though we don't know it and we don't always have a way of directly seeking it and that's part of what makes it special so I'm going to uh not spend a lot of time but there are a bunch of different ways that you can think about how to build Serendipity into your products this is one model that has come through video gaming thinking about like different types of people actually have different um systems for what they value and what gives them Serendipity but you know at the most General level I think it boils down to uh expectations and outcomes and if you can find a way to basically Max maximize the Delta between what people's expectations were and what the outcome was then you can deliver Serendipity and happiness so to recap because we're almost at time Tech changes people don't humans are irrational as well as rational social is stronger than experiential is stronger than utilitarian and Serendipity rules them all and now who got the something else again was it you sir so actually let me just go back to your happiness afterwards so the person who received something else you were the least happy of everyone and actually I I don't know why because you actually got the most valuable prize of everything you actually won sir and what you won is the choice of one of these two books thinking fast and slow and the 1923 Treatise on scientific advertising or your own personalized medal card if you've read both books so come see me afterwards for your prize all right so last slide and then we're done you know just thinking about how do we practically use these as we're building crypto products or building in crypto one is just give people stuff without any expectations set expectations low the second is ADD social and experiential incentives whenever you can third is use blockchain permanence to retroactively imbue value and meaning and the fourth is to recognize that sometimes the journey or the story is the actual thing that people care about and not necessarily the destination thank you all right we have maybe time for one question for Dan if Dan are you taking questions sure we have time for one question for Dan if it's in the audience okay uh who had the question and do we need a a mic do we have any questions for Dan raise your hand all right then I think we're good one more time big round of applause for Dan thank you