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It looks very like a pulse oximeter found in hospitals which can measure your pulse and the oxygen levels in your blood. As for it's use in games...........

Apparently the sound of your own heart beat is known to increase your level of excitement, so this could obviously be manipulated in games, horror and the trauma series of games would be prime candidates.

They could use it to affect game music on the fly e.g. if you are freaking out in a particular stage the rhthym of the music could change to match your level of excitement.