feature article
Subscribe Now

What Roller Coasters Can Teach Us About Economics

There’s Something Behind the Game Theory

“Is it a really evil petting zoo?” – the ghost pirate LeChuck

Ages ago, there was a computer game called Roller Coaster Tycoon. It’s still around, and thankfully, the developers haven’t even updated it all that much. Like the original 1977 release of Star Wars, it’s better in its original form without “improvements” from its creator. I loved playing that game, mostly because I got to design my own roller coasters. How often do you get to do that? 

The point of the game was to manage a successful amusement park, including all the rides and attractions, but also the infrastructure like the food court, drink stalls, security stations, garbage cans, walkways, and more. It was a game of micro-management, where you’re constantly clicking from one minor crisis to another, trying to keep your visitors safe from harm while also extracting the maximum amount of cash from their pockets. Fine, but again, the attraction for me was designing outlandish thrill rides. 

If your little kiddie teacup ride was boring, your virtual visitors wouldn’t show much interest, and you’d have to lower the ticket price to get anyone to ride it at all. But if your ride was exciting, they’d queue up for hours and pay top dollar for the privilege. A really top-notch, nausea-inducing, life-flashing-before-your-eyes thrill ride could rake in huge bucks with each rider. Score!

But here’s the rub. I’d create the most threatening thrill rides possible, and the long queues told me that riders’ interest levels were pegged at maximum. The line snaked out of the park. I’m a genius. Except… the park was losing money. How can that be? I’ve got the hottest ticket this side of Virgin Galactic. Clearly, the game’s financial modeling is broken. 

Or maybe I’m just a better engineer than an economist. It took me an embarrassing number of replays to uncover my obvious mistake. And the lesson has paid off ever since. 

In short, you never want customers standing still. People in a queue don’t spend money. Doesn’t matter how much they’ll pay for a ticket at the end of the wait, queueing time is wasted time, economically speaking. An analysis of my park’s finances showed the food stalls made more money than my super-duper roller coaster. Seriously? The hot dogs? 

That’s because volume trumps margin. Better to have a lot of small transactions than one big one. Food stalls were everywhere in the park, so customers could grab a snack – that is, they could spend money – and quickly be on their way to spend money again elsewhere. The key to food and drink profitability was to keep the lines short and the cash flowing. Since multiplication is commutative, increasing X is just as valuable as increasing Y. Increasing frequency of transactions (x) was an easier path to profit than maximizing profit per transaction (y). 

You may have noticed this when trying to sell a house. Naturally, you want to ask top dollar for your house, so you list it at the high end of the price range, hoping that maybe some idiot will offer you the full listing price. If not, you can always reduce it a bit later. Great strategy, right? 

So how come your real estate agent doesn’t agree and instead suggests a lower opening price? “Price it to sell,” she says. But why? She’s paid on commission, so aren’t her goals aligned with yours? Don’t you both want the absolute maximum transaction price to walk away happy? 

Nope. Real estate agents know that two quick sales are better than one long, slow, high-priced one. Turnover is king. You and she have fundamentally different strategies. To you, this is a one-off event (until the next time you move, anyway), whereas she’s in this for the long haul. Volume trumps a bit of profit on each transaction. Your goals are not aligned. 

But this doesn’t apply to all sales situations. Offer a car salesman a lowball price and he’ll smile and politely ignore you. But wouldn’t your rock-bottom offer be better than no sale at all? Wouldn’t he rather take a cheap offer and increase volume? It’s not that simple, largely because automakers offer their dealers all sorts of nonintuitive incentives to keep, move, or hold certain cars. Financing plays a role, too, as do rent, insurance, and utilities. Keeping an interesting car on the lot generates foot traffic. He might not want to sell it even if you offer thousands over the asking price. It’s a strange business. 

Commercial real estate is stranger still. Neighbors complain when the local strip mall has empty storefronts. “Well, obviously, they’re asking too much for rent! Any idiot can see they should be less greedy and fill those empty units. I want a yarn store!” 

Not correct, but thank you for playing. Lowering the rent on empty units antagonizes the existing tenants occupying the other units. Do they get a price break? Does their rent go down? For how long? Rents are often controlled (or at least, closely monitored) by local municipalities, so you can’t arbitrarily raise or lower rents without inviting scrutiny, if not lawsuits. Perversely, tax codes sometimes provide an incentive to keep properties vacant. Or, landowners will slow-walk construction work to keep the local permits alive. In short, there are a lot of factors involved in managing commercial real estate beyond simple supply and demand. 

Movie theaters, like my virtual amusement parks, make their money on snacks. The movie is just a marketing gimmick to get you in the door; the real money is in selling overpriced food and drinks. That’s why they’re so adamant about prohibiting outside snacks. That’s like taking your own food into a restaurant. Or your own movie into a movie theater. 

Printed newspapers and magazines – remember those? – have a perverse incentive to give away their product. Most print publications are supported by a combination of advertising revenue and monthly subscriptions, with the lion’s share coming from the ads. Advertising rates are based on the number of people who see the ads, and because it’s too complicated to calculate rates down to the individual reader, they’re chunked up into round numbers. This much for the first 10,000 readers, this much when circulation hits 50,000, and so on. If you’ve got 49,000 paying subscribers, it’s worth giving away 1000 copies (known as a forced free trial) to hit the 50K milestone and bump up your ad rates. Ever wonder where free magazines come from? 

In Roller Coaster Tycoon, the best strategy is not to design the best roller coaster. It acts like a black hole, sucking all your visitors into the long waiting line where they spend no money. Short-duration rides are also better than long rides because they increase throughput. Two or three boring rides are more profitable than one spectacular thrill ride. Sure, they’re less interesting to design, but that’s not the point of the game (unless you want it to be). What gets measured gets done, even if that’s not what you wanted or intended. In the game world, as in ours, it’s the quantifiable parts that define our goals.

Leave a Reply

featured blogs
Dec 3, 2021
Hard to believe it's already December and 11/12ths of a year's worth of CFD is behind us. And with the holidays looming, it's uncertain how many more editions of This Week in CFD are... [[ Click on the title to access the full blog on the Cadence Community sit...
Dec 3, 2021
Explore automotive cybersecurity standards, news, and best practices through blog posts from our experts on connected vehicles, automotive SoCs, and more. The post How Do You Stay Ahead of Hackers and Build State-of-the-Art Automotive Cybersecurity? appeared first on From Si...
Dec 3, 2021
Believe it or not, I ran into John (he told me I could call him that) at a small café just a couple of evenings ago as I pen these words....
Nov 8, 2021
Intel® FPGA Technology Day (IFTD) is a free four-day event that will be hosted virtually across the globe in North America, China, Japan, EMEA, and Asia Pacific from December 6-9, 2021. The theme of IFTD 2021 is 'Accelerating a Smart and Connected World.' This virtual event ...

featured video

Imagination Uses Cadence Digital Full Flow for GPU Development

Sponsored by Cadence Design Systems

Learn how Imagination Technologies uses the latest Cadence digital design and simulation solutions to deliver leading-edge GPU technology for automotive, mobile, and data center products.

Click here to learn more about Cadence’s digital design and signoff solutions

featured paper

How TI mmWave radar safety guards can help improve manufacturing productivity

Sponsored by Texas Instruments

The shift toward industry 4.0 has spurred an increase of robots on factory floors, including industrial robots, collaborative robots and more. Because these robots work alongside humans, they must have advanced sensing and functional safety capabilities to recognize potential collisions and minimize risk of injury. This article discusses how TI mmWave-based safety guards can be used by industrial companies to help improve manufacturing productivity without compromising safety.

Click to read more

featured chalk talk

Mission Critical Electrical Controls

Sponsored by Mouser Electronics and Littelfuse

If you are working on a mission-critical design, there is a very important list of requirements that you will need to consider for your electromechanical controls including how well they have been tested, availability of inventory, and the quality of the components. In this episode of Chalk Talk, Amelia Dalton chats with John Saathoff from Littelfuse electromechanical solutions offered by Hartland Controls, the benefits Hartland brings to the table when it comes to mission-critical designs, and how you can get started using Hartland Controls for your next design.

Click here for more information about Hartland Controls from Littelfuse