Risk and Ambiguity: Unpacking Uncertainty in Platform Rewards Design

35 Pages Posted: 2 May 2022

See all articles by Andy Tao Li

Andy Tao Li

School of Management, University of Science and Technology of China

Ting Li

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Tong V. Wang

Dongbei University of Finance and Economics - Institute for Advanced Economic Research

Date Written: April 23, 2022

Abstract

We study whether platforms that offer uncertain rewards can enhance user engagement compared to certain rewards with the same expected value. We distinguish two types of uncertainties—risk, where people know the potential outcomes and corresponding probabilities of occurring, and ambiguity, where people only know the outcomes but not the probabilities. In collaboration with a leading telecom operator, we designed and conducted a large-scale randomized controlled trial with more than 65,000 mobile app users to assess the effects of uncertain rewards on user engagement. We found that, compared with certain rewards, uncertain rewards can significantly increase engagement in terms of user retention, spending, and social referrals. More specifically, rewards with ambiguity achieved better user retention, whereas rewards with risk achieved more social referrals, and both led to more spending. Further mechanism explorations unpack the box of uncertainty by investigating how risk and ambiguity work differently and indicate that curiosity and optimism bias invoked by the uncertainties played an essential role. Our study distinguishes the two types of uncertain rewards and highlights their potential to increase customer lifetime value. The findings of this study deepen our understanding of why uncertain rewards could be effective and how risk and ambiguity work differently, offering insightful implications for platform practitioners.

Keywords: ambiguity, field experiment, risk, social referral, user engagement

JEL Classification: D, M

Suggested Citation

Li, Andy Tao and Li, Ting and Wang, Tong, Risk and Ambiguity: Unpacking Uncertainty in Platform Rewards Design (April 23, 2022). Available at SSRN: https://ssrn.com/abstract=4091123 or http://dx.doi.org/10.2139/ssrn.4091123

Andy Tao Li (Contact Author)

School of Management, University of Science and Technology of China ( email )

China

Ting Li

Rotterdam School of Management, Erasmus University ( email )

Burgemeester Oudlaan 50
3062PA Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tong Wang

Dongbei University of Finance and Economics - Institute for Advanced Economic Research ( email )

217 Jianshan Street
Dalian, Liaoning 116025
China

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