The Behavioral Economics of The McDonald’s Monopoly Game

I’m embarrassed to admit it, simply because for the last decade or so I have tried so hard to reject the fast-food diet I had as a kid growing up in rural America.  Still, however, there is a warm place in my heart for the McDonald’s Monopoly game.

One thing I notice now, though, that I didn’t notice then, is how McDonald’s plays on our irrationality to make this annual marketing campaign such a success.  There are two elements, specifically, that it relies on.

“Threshold” Values

This is a term that I’m making up, perhaps only because I’m not aware of the official moniker.  The idea, however, consistent with behavioral economics thinking, is that we have a tendency to over-value certain amounts because of their symbolic value.  People play the Monopoly game not just because it is a fun complement to their dinner, but also because of the (very distant) possibility of winning that million dollar prize touted in all of the Monopoly game commercials.

A million dollars is a very powerful and motivating amount in our society.  We imbue it with all kinds of meaning and importance that is totally undeserved when you consider how close it is in proximity to 999,999.  For most middle-class Americans, to be a “millionaire” is to have reached the apex of financial success.

Money Illusion

A million dollars doesn’t buy what it used to.  And it sure as hell won’t buy in twenty years what it would buy you today.  McDonald’s recognizes this, but they also know that most Americans don’t, and so they don’t hesitate to reward the million dollar prizes in annuity payments of $50,000 over twenty years.

They are playing on what behavioral economists call money illusion – our tendency to value money in terms of nominal and not real (i.e., discounted for inflation) amounts.

For example, at an average rate of inflation of 3.5%, the $50,000/year that McDonald’s pays its winners would be worth (before taxes) about $735,000 in today’s dollars.  After tax, it would probably be in the neighborhood of $500,000.  (This is its “present value.”)

McDonald’s tactic here also takes for granted the idea that people don’t consider opportunity cost when thinking about how they spend and invest money.  If we did, we would almost certainly poo-poo McDonald’s annuity payment approach and demand a bulk payment in year one.

For example, let’s say that McDonald’s paid out that $735,000 to its winners immediately, instead of promising a million dollars over twenty years.  And let’s say that 50% is taken away in taxes, so you’re left with about $367,000.  If you were able to invest that money for twenty years at a modest 7% rate of return, you’d end up with about $1.325 million (in nominal terms), significantly more than the $1 million they give away.

Note: Robert Shiller and George Akerlof provide a great overview of money illusion and the history of the idea in their book, “Animal Spirits.”

To tie this all together.  Let’s imagine that, instead of the “Play the Monopology Game, Win a Million Dollars!” message that McDonald’s currently sends out, they said something like this…

“Play the Monopoly Game, Win Over $700,000! …Because even after taxes, your winnings can become well over a million dollars in twenty years by investing smartly!”

Now wouldn’t that be a hell of an ad campaign!?

Seth Godin on Sliced Bread

A classic TED Talk on making your ideas spread.

Certainly, there are no shortage of great ideas and inventions out there, but rather a shortage of great execution. That includes not only getting the right people on your bus, not only designing products and services with your customers and their needs, habits, tendencies, circumstances, etc. in mind, but also getting in front of customers, investors, and colleagues in a way that will compel them to get on board.

If you haven’t already read it, the Heath Brothers’s “Made to Stick” is another fabulous “how to” along these lines.

Enjoy!