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Behavioural Economics on Libra

Not too long ago Facebook released information on them creating a currency. The currency is called Libra (I’m a libra, is Mark Zuckerberg one as well or is that not how they came up with that name?). A lot of people have expressed excitement, others have expressed worry about this currency. I study payment methods myself. Although I mainly focus on contactless (card and mobile), I do think I have enough background to comment on Libra, from a BE perspective of course.

What is it? Before we start critiquing, let’s actually figure out what Libra is. Libra has been pitched as a “global currency” that could reinvent money and transform the global economy, “so people everywhere can live better lives”. Beautiful. How are people going to live better lives? Because the coin is being marketed as being for the very poorest who don’t have a bank account. But do have phones and Facebook. Right.

Independent, guaranteed value? Mother Zuckerberg might have the right mindset (more likely the right PR-team), but effectively Libra is a cryptocurrency. The best thing about cryptocurrencies? The decentralization they promote. This ensures power is (somewhat) equally divided between all of those who trade in it. Does that sound like something Facebook would ensure? Hell no. There is a Libra Association, a not-for-profit organization made up out of Facebook and partners such as PayPal, Visa, eBay, Spotify, Uber, Vodafone etc. Very independent parties who definitely don’t have a biased perspective on online currency… Luckily there’ll be NGO’s participating in this initiative as well, such as Women’s World Banking, but will they balance out the bias?

Each partner needs to put at least 10 million into Libra. This so far, except for the “skin in the game” issue isn’t too bad. What is more of an issue: it’s this very association that has to power to mint or burn money. Libra Associated acts like a Central Bank, as such determining the value of the damn coin. Not good. Independent value? My ass.

Big Money is watching You Everyone is aware that how, where and on what you spend your money is already being tracked. Your bank tracks your spending, whether you have an online banking app or not. They have this data. If you have a finance tracker app, such as Money Dashboard (an app used to help you track your spending and set savings goals etc.) your spending is being tracked.

Now many finance apps sell your data. Although it is anonymized. They don’t care about your identity; they use the apps to predict stock fluctuations. This is how they make their money, whilst providing you with a good service that isn’t ripping you off by showing you ads of things that you buy a lot. That is a business model I personally can get behind.

This is not the business model of Facebook. Facebook lives of ads and selling you stuff. If you use their currency, you make it even easier for them to see what you spend your money on. They’ll figure out which ads are most effective at what time, and for which products. Facebook will encourage you to spend. And they don’t need to change their platform to do it.

Moreover, Facebook does care about your identity, always has, always will. In many statements they have claimed that Facebook will not link your profile data (so your actual social media) to the data gathered by Libra. No one but you should be able to see how, when and where you spend your Libra, or how full your Calibra (wallet holding Libra) is. If you still believe Facebook will protect your identity and not use it to make more money, you have lived under a rock my friend.

Addicted to Facebook, addicted to Libra? Facebook is filled with opportunities to spend money. There are many ads for unrelated companies and they work well. Moreover, I wouldn’t be surprised if they came out with additional Facebook services after Libra has launched. Services such as LinkedIn’s Premium version where you get to see who is looking at your profile and your user stats become more detailed, if you pay for them of course. But this is not what I’m worried about. I’m worried about the gaming aspect of Facebook.

Facebook has a lot of games that have been specifically designed to be incredibly addictive. They are mainly aimed at children, but people of all ages can (and do) play them. These games are addictive enough as they are, but often they are a lot easier to play and unlock if you “pay to play.” Now wouldn’t Libra make that process a lot easier?!

What does it mean to spend Libra? The fact that it does become increasingly easier to spend Libra ties in exactly with my research topic. I look at theories of how people relate to money. And to be honest, I can’t quite figure out how to relate to Libra myself. It seems like play money. It is designed as play money. Or as the term has been coined over a decade ago: “Monopoly Money.”

What does that mean? Well if our brain doesn’t register that Libra is in fact real money, we won’t treat it as such. If we cannot make the link between Libra and what we would normally spend our money on, say groceries, rent, healthcare, transport etc. we will end up spending it very differently.

It might even be that we treat it as “house money.” This term comes from the gambling industry, where cash is seen as the gambler’s money, but the chips are seen as the money of the casino. It isn’t until the chips are cashed in and the gambler can see how much is left (often less than what they started with), than the loss of money is felt. Would Libra be the same? I think it would. Especially if I relate it back to how easily Libra will be integrated in the Facebook gaming culture. So, Libra has been designed to mess with the pain of paying: the negative sensations we feel after having spent (lost) money, and that is bad. This is what banks have been doing for decades, but linking it to a social platform is even worse. Because to be honest, what I do with my bank account almost no one else but me knows. What I do online, on a massive social media platform such as Facebook, yeah that’s open to thousands of people, even if Facebook keeps claiming it won’t be. And if you can see what other people spend Libra on, you might emulate.

This is what we see with social platforms. We try to fit in with the group we (want to) identify with. This might no longer be a massive issue once you’re over the age of 25. It’s definitely not as impactful if you didn’t grow up having Facebook. But what if you did? We look to other people to see what is deemed normal. Without Facebook, “other people” are your immediate circle of family, friends, colleagues and neighbours. With Facebook, that can be any person or any group in the world.

If Facebook pushes out, or at least emphasizes Libra usage through its online community (and it will, it’s Facebook) they will start normalizing its usage. We are sheep, we just are. If everyone else is doing it, we are more likely to do so as well. That tends to be step 1 in introducing something new. The second step? Increasing the usage that has been established as normal. In BE this will resemble the “keeping up with the Joneses” phenomenon. If people around you will start spending more and more using Libra, it is likely you will emulate. This effect is again, stronger in youths. Is that what we want to raise our generations on?

Overall, I am not keen on Libra. I am impressed by how much behavioural science it has used. But I am worried about how that science is directed. It is not to the advantage of the consumer, that is for sure.

It worries me how impactful this will be for the younger generations, those still learning how to related to and appreciate money and what it can do. What worries me even more is the fact that it is targeted at the financially most vulnerable. If they overspend, due to a lack of understanding of how Libra works, their parents can’t bail them out. The consequences of this can be catastrophically bad. There are financial livelihoods at stake here.

It’s a dislike from me.


Behavioural Science

Personal Finance



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