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Loot Boxes in Video Games: Great Innovation or Gambling Worries?

Updated: Sep 19, 2023

Investigating the Psychological Effects of Loot Boxes and Government Policies to Control Them


If you or your kids have played a free-to-play game in the past few years, it's almost certain that you have encountered some of the ways video game companies try to squeeze money out of the ever-tightening wallets of consumers. From extra downloadable content (known as DLC) to season-passes, publishers are providing more ways to keep gamers hooked while parting with their hard-earned cash through these subscription-based approaches. But a new controversial source of income has some gamers, parents and stakeholders concerned that children and vulnerable individuals are being exploited.


What is a "loot box", anyway?

With an increase in free-to-play and "game-pass" models for new releases, the game industry relies on alternative sources of income other than traditional sales, and loot boxes have become popular with both consumers and and publishers. Loot boxes are virtual consumables that provide players with randomised in-game items, ranging from simple cosmetic changes to game-changing benefits. For some games, they form an integral part of the player experience; in collectible card games (like Hearthstone by Blizzard Entertainment), new cards are obtained through randomised virtual packs, akin to real-life collectable trading cards. In other games, loot boxes might just give players new cosmetic options, or they can provide perks that aid gameplay progress or increase a player's performance over others.[1]


Loot boxes can sometimes be gained through gameplay, but are often purchased using real-life payment, and the UK loot box market alone was estimated to be worth around £700 million in 2020.[2]

While real-life trading card games have had random card packs for decades, games have only recently adapted this exciting but controversial system. Image: Hearthstone, Blizzard Entertainment.

What's so controversial?

While many players enjoy their implementation, others are not so sure. When they are advertised for sale in traditionally priced games, it's not hard to see them as anti-consumer. For example, Star Wars Battlefront II (EA, 2017) faced massive backlash upon its release due to paid-for loot boxes that could increase player performance, essentially making the game "pay to win".[3]


GamebleAware, the UK charity that researches gambling and supports those with addiction, has found that loot boxes are most popular with men, younger people and those with lower levels of education.[2] Children are particularly at risk, as they can't often distinguish gaming worlds from the real world - every few months, it seems like there are news articles from parents whose child has accidentally spent hundreds or thousands of pounds in games, not realising they were spending real money and not in-game currency.[4,5] Pressure from friends can also lead to children buying loot boxes to gain cosmetic items to not appear "poor", with reports showing some children spend over £300 in a year.[6] Recent research has even investigated potential links between loot boxes and gambling addiction in children and vulnerable adults...

Loot boxes in Star Wars Battlefront II were heavily criticised by players for their "pay-to-win" model, leaving those unwilling or unable to pay lagging behind... Image: EA Games.

Are loot boxes gambling, then?

Technically, loot boxes are not gambling, as the rewards gained from loot boxes count as "prizes" and can't usually be transferred back into cash.[7] The psychological mechanisms used in loot boxes, however, are essentially the same in traditional gambling, including[8]:

  • variable-ratio reinforcement schedules (where the player’s behaviour is rewarded after a random number of loot box openings)

  • "winners" gaining over the expense of "losers" (increased performance in-game)

  • element of chance partially determining the outcome

So far, research has not established a direct link between loot boxes and gambling addiction, but some studies have shown that high-risk gamblers spend more on loot boxes than on other in-game purchases.[9] The effect on 16 to 18-year-olds is especially pronounced: adolescent problem gamblers were found to spend more than five times the amount on loot boxes than adolescents with no gambling problems, and the link between gambling problems and loot box spending is more than twice as strong with adolescents than with adults.[10]


Think back to the £700 million UK market I mentioned earlier, as the possible link between loot boxes and those with gambling problems is more obvious when we look at revenue: half of the gaming industry's loot box revenue comes from just 5% of the people who bought loot boxes at all. A third of that 5% are classed as "problem gamblers", an amount considerably higher than the general public or typical gamers .[2]


What is being done?

As of 2023, loot boxes do not fall under the Gambling Act 2005, an act of Parliament that controls all forms of gambling in the UK, although multiple commissions and reports have called for them to placed under the act.[6,11,12] A Call for Evidence took place in 2021 as part of a wider review on the gambling act, where the Department for Digital, Culture, Media & Sport (DCMS) decided to keep loot boxes in their current legal position.[13] They did, however, encourage preventing children from accessing loot boxes without parental consent and enabling spending controls.


This decision somewhat resembles legislation found in other countries; in 2017, the Chinese government became the first country to legally require companies to disclose the odds of winning each item in loot boxes. They also limit loot box spending for under 18s, and ban spending completely for under 8s.[14,15] Meanwhile, a European report found loot boxes were an issue of consumer protection rather than gambling, and, in Belgium, a number of games with loot boxes have even been found to violate Belgian law.[16,17]


Challenges for the future

While loot boxes can undeniably be exciting in the hands of the right player, there are too many times they are used by games companies to exploit its customers. As gaming technology shifts and moves on at a rapid pace, it's clear that any laws must be ready to adapt for what's to come next - 2022's NFT explosion and 2023's widespread use of AI being good examples of technology advancing and spreading faster than regulators can act.


Although children obviously need greater financial literacy and protection from overspending, it is often the parents who fall behind in this technology race. In-game purchases (and the spending controls that come with them) have been part of the online gaming landscape for at least a decade, but for adults who did not grow up with video games, navigating gaming console interfaces and storefronts is not always a simple task.[18,19] The current games age rating system, Pan European Game Information (PEGI), has additional content descriptors alongside age rating. An "In-Game Purchases" descriptor was introduced in 2018, and a subtitled warning specifically for loot box-style purchases, reading "Includes Paid Random Items", was added in 2020, although compliance with the system has not been consistent.[20,21]


Whether loot boxes hang around or game publishers move onto the next money-making model, both the law and the consumers (or their parents) need to be ready to adapt.

While the PEGI rating system has tried to adapt with the times, showing additional warnings for loot boxes, many games companies have not complied. Image: PEGI.

References

  1. Woodhouse, J. (2022). Loot boxes in video games. House of Commons Library.

  2. Close, J. and Lloyd, J. (2021). Lifting the Lid on Loot Boxes. GambleAware

  3. BBC News "Star Wars game in U-turn after player anger", accessed May 2023 https://www.bbc.co.uk/news/technology-41981979

  4. POSTNote number 405

  5. BBC News "Dad horrified at £4,642 gaming app bill", accessed May 2023 https://www.bbc.co.uk/news/business-53272411

  6. Children’s Commissioner for England (2019). Gaming the system

  7. Gambling Commission (2017). Virtual currencies, eSports and social casino gaming – position paper.

  8. Drummond, A. and Sauer, J.D. (2018) Video game loot boxes are psychologically akin to gambling. Nat Hum Behav 2, 530–532.

  9. Zendle, D. and Cairns, P. (2018) Video game loot boxes are linked to problem gambling: Results of a large-scale survey. PLOS ONE 13(11): e0206767.

  10. Zendle, D. et al. (2019). Adolescents and loot boxes: links with problem gambling and motivations for purchase. R. Soc. open sci. 6: 190049 . 190049.

  11. DCMS Committee (2019). Immersive and addictive technologies. House of Commons.

  12. Select Committee on the Social and Economic Impact of the Gambling Industry (2020). Gambling Harm – Time for Action. House of Lords

  13. DCMS Consultation Outcome (2022). Government response to the call for evidence on loot boxes in video games.

  14. Xiao, L. et al. (2021). Gaming the system: Suboptimal compliance with loot box probability disclosure regulations in China. Behavioural Public Policy, 1-27.

  15. Xiao, L. (2020). People's Republic Of China Legal Update: The Notice On The Prevention Of Online Gaming Addiction In Juveniles (Published October 25, 2019, Effective November 1, 2019). Gaming Law Review, 24:1, 51-53.

  16. Cerulli-Harms, A. et al. (2020). Loot boxes in online games and their effect on consumers, in particular young consumers. Policy Department for Economic, Scientific and Quality of Life Policies, Directorate-General for Internal Policies, European Parliament.

  17. Naessens, P. (2018). Research Report on Loot Boxes. Gaming Commission, Belgian Federal Public Service for Justice.

  18. OFCOM (2020). Parental controls for games consoles. (accessed September 2021).

  19. Internet Matters. Spending money online – Advice for Parents & Carers. (accessed September 2021).

  20. Pan European Game Information (PEGI) (2018). PEGI announces new content descriptor: in-game purchases. (accessed September 2021).

  21. Xiao, L. (2023). Beneath the label: unsatisfactory compliance with ESRB, PEGI and IARC industry self-regulation requiring loot box presence warning labels by video game companiesR. Soc. open sci.10230270230270 http://doi.org/10.1098/rsos.230270



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