Balance in the Economy of Foursquare

If you’re not familiar with Foursquare, here’s a primer: Foursquare is a location-based social network with gaming elements. To play, you download the Foursquare app onto your AndroidiPhone or Blackberry device (or go to if you have something else). When you’re out and about – at a pub, cafe, restaurant or anywhere else – you open the app and “check-in.” The app will use your phone’s GPS to see if you’re near a venue in it’s online database. Screenshot of Foursquare on iPhoneIf Foursquare finds a match, just tap a button to check-in to that place. If the venue isn’t in the database, type a name to add it. Straightforward, but why would you do this? Well, if you have friends that use the service, you can see if they’re nearby, or maybe they’ve left some tips about the place. You might share things like “Best pizza in town” or “Skip the pasta, try the salmon.” As more of your friends use the system, you should develop a better awareness of where you live, find cool places to hang out, explore the city and have fun based on the recommendations and information from people with similar interests. It’s an exciting concept, because it brings social networking closer to real life socialising.

Foursquare is unique, because in addition to the social networking aspect, it’s also a game, the object of wich is to collect virtual badges and “mayorships” by checking-in to more and different types of places. Check into a dozen coffee shops in town, and maybe you get a “coffee snob” badge. Check in after 3am Sunday through Thursday and you get a “Out on a School Night” badge. Be the person with the most check-ins at your favourite cafe and you’ll become the “mayor” of it. As such, some businesses have even started giving deals – say, free coffee – to the reigning mayor, adding real-world incentives for virtual social activity which creates a fun and potentially viral marketing angle to the traditional loyalty punch-card scheme.

There’s just one little snag with the game: it’s easy to cheat. You don’t have to be a hacker to do it either, though some have gone that route. You simply check into places you’re not really at. Because your GPS is only so accurate, and because most “places” you’re inclined to go are indoors, the little GPS (or radio-assisted aGPS) chip in your phone can only determine your location to within a few dozen – or a few hundred – meters, depending on your device and conditions. This is good enough to give a ballpark estimate of your location for the purposes of finding out if any of your friends are nearby, but it’s not accurate enough to give a definitive location or to verify a check-in. So, if I’m sitting at a pub in the CBD, checking-in to Foursquare, the GPS can’t actually tell if I’m at the pub, the shop across the street, or the cafe a few doors down – so I may as well go and check into them all. If the cafe next door wants to offer free coffee to the reigning mayor of their shop, they might soon find that none of their best customers are able to snatch the title away from the punters who frequent the pub next door.

I’m guessing that the game mechanics were layered on top as a marketing angle, which is a clever way to increase the user base, and bring people into the system. Allowing cheating to become commonplace, however, leads to “data pollution,” as those who cheat aren’t adding any value to the community, thereby depleting the usefulness of the service as a whole.

As a human living in a civilised society, your first thought is probably to bring cheaters to justice. Create a police department – punish the offenders! But on the internet, that doesn’t work, because policing cannot adequately scale as the system grows. The people who run Foursquare will never be able to find and stop everyone who cheats, undo every fake check-in and delete every fake venue. So discouraging such behavior has to be built into the game.

This is where we can learn from economics. If another layer, let’s just call it “credibility,” were linked to your ability to gain rewards, you’d add a reason not to cheat, to balance out the reasons you’d want to cheat. Your economics professor would probably call it “introducing moral hazard.” But that doesn’t really matter, here’s how it’d work in something like Foursquare: Everyone starts with a normal, medium credibility which allows normal, medium privileges. You can add places, you can steal mayorships and you can check-in at a new place every five minutes or so. Abuse the system by making too many check-ins too quickly or by adding useless places and  you run the risk that another user will catch on and flag you. A single flag would not lead to serious consequences – it might only slow down your maximum check-in rate to 10 minutes, which most people don’t do anyway. But if you continued your campaign of abuse, you’re likely to run into more users, who would also notice that you’re checking in all around town, and flag you as well, increasing your minimum wait between check-ins to 30 minutes. Or several hours. Or maybe days.

The theory is that the more prolific you become as a cheater, and the more broadly and blatantly you cheat; the more users would take note and flag you. The distribution, breadth and credibility of the users you’re being flagged by might also influence your penalty. If you’re simply checking into the pub across the street from the one you’re really at,  no one may take notice – or care – but if you check into every pub in town you can bet that dozens of folks would pick up on it. Your credibility would also be tied to your ability to attain rewards, so the best stuff might only be available to those in good standing.

If a credibility layer is implemented, I think that it should be used positively as well. The system could be more useful by using these points in the background to rank and display tips. For example, if I take the advice of a friend to get the salmon, and I really like it, I can indicate that I took their advice, improving their status and giving their tip a higher ranking in the list of tips for that venue. Maybe tips would always be listed in order of their writer’s credibility. Not only could this model limit cheating, but it might encourage people to provide more helpful tips, limit trolling and create a more useful system – being the most credible Foursquarer in town would be something to aspire to.

Dennis Crowley, co-founder of Foursquare notes that there are a lot of fake check-ins, but that they haven’t put a lot of effort into the problem of tackling cheating systemically. He seems to favour approaches that more closely validate your checkin.

I feel the phenomenon is rooted in economics. Wherever you create incentives, people find ways to use the system in unintended ways to get them. Such a system must also have disincentives, things that people do not want, which limit your ability to gain the incentives, and thereby balance the system. In the real economy, big rewards bear big costs, and so would it be in a micro-economy like Foursquare. Lasting success can only be gained by adding genuine value to the community, which can only be earned as the player becomes more respected by their peers.

I understand that a lot of these social tools are more social experiments than anything, and that cheating on Foursquare is hardly breaking-news, but I find it fascinating that any time the concept of reward is introduced to a society, even if it’s a tiny one like on Foursquare, you invariably find economics and game theory at work.

Update: Foursquare launched a new version today, and I’ve updated the screen-grab from the new version.

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