The Horseshoe Shaped Curve

I tend to spend time thinking about the structure of motivation - because the principle design problem of computer games is a motivational one. That is, how do I motivate a player to keep playing (where they often can put in hours upon hours of time and expend considerable effort while playing)?

Towards this end, a “progressive” increasing marginal tax rate (IMTR) has game psychology all wrong. An IMTR would be like giving the player smaller and smaller bonuses, or weaker and weaker additional powers, as they conquer more and more difficult levels. “You just defeated the Super-Gorgon-Platinum-Dragon  Level 26 Monster! Congratulations - here’s a +1 wooden shield!” (To those who have no idea what this means, you can safely assume that it is not a very good reward for the heroic feat the game player just accomplished.) Clearly, this would undermine their motivation and make them want to stop playing - rather than making them want to move further and further into the game. In other words, this sort of motivational structure doesn’t make sense as it will probably de-motivate the, in the IMTR case, taxation player.

Instead, I think that a more effective solution to the taxation problem is a horseshoe shaped taxation curve. It starts out actually quite high (say, 50%), and then its marginal rate decreases until a relatively high level of income (say, 5% at $200,000). At that point, it begins to increase again.

The practical effect of this, I think, would be dramatically different from the IMTR most socialist democracies such as the U.S. or Canada use. As you start out, the one thing that you are focused on is “How do I increase my taxable income?” because the higher your income is, the lower your marginal tax rate (at least for the foreseeable future), and so the higher your marginal net income. This is a forward-looking psychological benefit as well as a material one. As it is, many people’s focus is on how to minimize their incomes, or there is a vague unease about moving to a higher tax bracket as they consider it a diminished marginal return for often much more marginal effort - a perverse state of affairs.

This entry was posted on November 24th, 2008 and is filed under Design, Politics, Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or Trackback from your own site.