Unlocking loot boxes: gaming hype, or gambling-like?

By Patrick Gallus

Recent changes are flipping how the USD$200 billion video game industry makes money. In-game microtransactions are soaring in popularity, and some of the mechanisms they use look a lot like gambling.

Only a few years ago, games were sold with a single price of admission: you buy the game, and it’s yours to play for as long as you like, with few or no further costs.

Microtransactions, particularly loot boxes (random in-game rewards that are often purchased with real-world money) are now, however, becoming increasingly prevalent. A 2020 study of the most popular games on the Steam gaming platform found that the proportion of gamers exposed to loot boxes rose from just five per cent in 2010, to 71 per cent by 2019.

In-game microtransactions are soaring in popularity.

University of Tasmania’s Associate Professor Jim Sauer and Dr Aaron Drummond from New Zealand’s Massey University are psychological scientists and gamers who have considered the interplay between gaming, cognition and behaviour.

Dr Drummond argues that the growth in loot boxes and rewards in games isn’t inherently bad. There is, however, an important caveat.

‘There are ethical ways of making money, and then there are ways that rely on variable ratio reinforcement which are less good,’ he says.

Put another way, gaming companies can make money without employing gambling-like mechanisms. Associate Professor Sauer and Dr Drummond are concerned about loot boxes because they look like gambling.

Loot boxes differ across games, providing players with various rewards, like weapons or clothes, for their character. Activating loot boxes is designed to appeal to gamers, triggering animations and sounds.

While some are unlocked through gameplay, the researchers are concerned with the growing number bought with real-world money. Gaming companies were estimated to have made US$15 billion from loot boxes in 2020, which is expected to increase to more than US$20 billion by 2025.

Loot boxes may differ superficially, but what’s going on under-the-hood is consistent across games, and is rooted in the same psychological tactics that lead people to experience gambling harm from pokies.

Activating loot boxes is designed to appeal to gamers.

There are two important aspects of learning at play.

Operant conditioning: if you reward someone for doing something, they’re more likely to do that thing again.

Variable ratio reinforcement: rewards come on a random schedule, so if a behaviour doesn’t lead to a reward, a person may feel one step closer to the next reward.

It’s suggested that the most effective way to encourage behaviour is not to reward every instance of that behaviour, but to provide rewards for behaviour randomly, as per pokies and loot boxes.

To find out, Associate Professor Sauer and Dr Drummond applied Professor Mark Griffith's five psychological criteria for gambling activities to 22 popular games that have loot boxes. The criteria include whether a cash exchange takes place, the role of chance in determining the outcome, and that winners gain at the expense of losers.

Ten of the games, including popular titles Overwatch and PlayerUnknown’s Battlegrounds, met the psychological criteria for gambling, while 17 involved paying real money for a chance outcome. All games were available to people aged under 18.

The researchers considered whether loot boxes in these games met the Commonwealth’s legal definition of gambling: (1) risking something of value (2) on a chance-based outcome (3) where it’s possible to win something of higher value.

Dr Drummond says that loot boxes easily meet the first two elements of the definition.

So, are people who buy loot boxes winning something of value in the real world?

‘To our surprise, they actually were, and not just a little bit of real-world money,’ he says.

Are people who buy loot boxes winning something of value in the real world?

Online marketplaces, where players can sell loot box items for real money, are running a roaring trade. Data from one marketplace on the Steam platform alone showed sales of loot box items from just three games totalled more than US$1 billion. Some individual items were sold by players for more than AU$1300.

Associate Professor Sauer points out that more research is needed to understand potential effects of loot boxes, including harms.

‘We don’t know what the short- or long-term effects of engaging with loot boxes are,’ he says. ‘We don’t know if it increases playtime or unwanted spending, and if it will translate into future gambling behaviour.’

As understanding of loot boxes grows, parents are encouraged to have critical conversations with kids about gaming, gambling and marketing strategies.

Notably, Associate Professor Sauer isn’t concerned about his eight-year-old son gaming.

‘But I have conversations with him about certain games that have microtransactions, and why I think they’re a bad idea,’ he says.

Associate Professor Sauer addressed Mental Health Foundation Australia’s Gambling and Mental Health online symposium in October 2022.