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Will Virtual Economies Affect Real-World Economics?

simoniker posted more than 10 years ago | from the gross-national-product-of-norrath dept.

Role Playing (Games) 38

Thanks to Game Studies for their Edward Castronova-authored article discussing the economics of massively multiplayer games, which asks the question: "Will these economies grow in importance? Second, if they do grow, how will that affect real-world economies and governments?" It's suggested that "the mere fact that Earth economies may suffer as people spend more time in cyberspace does not imply that humanity is worse off", as "the basket of produced goods is simply changing." Finally, some of the unique economic facets to virtual worlds are pointed out: "Economics, on Earth, argues that no wise government will try to control prices. In an avatar economy, however, the government can effortlessly peg many prices at any value."

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38 comments

Fixing Prices (4, Insightful)

spencerogden (49254) | more than 10 years ago | (#7873924)

It may be easier to fix prices in a virtual world (No Cops or raids neccessary). But that does not mean it will not hurt the virtual economy, or that a black market will not appear. Think of all the stories about selling virtual objects and characters on Ebay.

Re:Fixing Prices (1)

Lord Kholdan (670731) | more than 10 years ago | (#7874348)

It may be easier to fix prices in a virtual world (No Cops or raids neccessary). But that does not mean it will not hurt the virtual economy, or that a black market will not appear. Think of all the stories about selling virtual objects and characters on Ebay.

How can a virtual economy be hurt?

Re:Fixing Prices (2, Insightful)

tc (93768) | more than 10 years ago | (#7875526)

Runaway inflation is a problem because the money supply is uncontrolled in many virtual economies. Prices for raw materials and items from in-game vendors can be fixed, but that doesn't stop the player prices from spiralling uncontrollably, and typically turning into barter economies for all but the most common of goods, with money (gold, credits, whatever) being essentially worthless for non-newbies.

The originally planned in-game economy becomes useless for meaningful trade, and the 'real' game economy is conducted via eBay or primitive bartering. Where of course it's difficult for the operators of the virtual world to perform any regulatory functions.

Re:Fixing Prices (2, Insightful)

mutewinter (688449) | more than 10 years ago | (#7876825)

Ever notice that inputing cheats into a game to give you powerful or all items makes the game a whole lot less interesting? Decrease the price artificially (which isnt really the correct word to use -- since the scarcity of the item in a virtual world too is artificial) and eventually the player will loose interest.

"Hey look I got this cool, rare xxxx!"
"Oh yah? I got it too"
"So do I"
and eventually its not so "cool" anymore.

Hm.. perhaps this explains why fads and clothing styles don't hang around very long. Forget implications to the virtual world.. its really just a mirror of ourselves.

"Wise" Being the key word (4, Interesting)

duffbeer703 (177751) | more than 10 years ago | (#7873941)

Economics, on Earth, argues that no wise government will try to control prices. In an avatar economy, however, the government can effortlessly peg many prices at any value.


Real, unwise governments institute price controls all of the time with devastating effect. Witness how the US healthcare industry is reacting to price ceilings instituted via insurance and government health programs and how the oil markets reacted to Nixon's attempts to curb inflation in the 1970's.

Re:"Wise" Being the key word (4, Informative)

KDan (90353) | more than 10 years ago | (#7873995)

It does not even have anything to do with being wise, but with being capitalistic. The submitter is very narrow-minded. Purely capitalistic economics argues against price control. Purely communist economics argues for it. There's a wide range of possibilities between the two, and certainly not all have been proved unwise (and if they have been, then all governments are unwise because no government is 100% capitalistic).

Daniel

Re:"Wise" Being the key word (0)

duffbeer703 (177751) | more than 10 years ago | (#7874079)

Name a positive application of price controls...

Whether it's milk, gasoline, housing, electricity or any other commodity, price controls are a lousy idea.

They don't need to be imposed by governments either. Look at the chilling effects that Wal-Mart has had on consumer manufacturing or Big Agribusiness has had on food supplies and farmers.

Re:"Wise" Being the key word (2, Insightful)

bj8rn (583532) | more than 10 years ago | (#7874120)

price control is a good idea if you're dealing with a monopolistic market, especially one with very high entrance costs but producing something that many people use. as, for instance, is in the case of electricity and water (or telephone) in some places.

Re:"Wise" Being the key word (0)

Anonymous Coward | more than 10 years ago | (#7878262)

A positive application would be the price controls on health care in non-U.S. Western countries--sure, they have longer waiting lines than us, but I'd rather have that than costs raising at 20% every year. Our system WILL collapse, dragging our entire economy with it, if the government does not begin large scale intervention soon--either strict cost controls must be introduced, or price discrimination by health care providers must be halted.

Re:"Wise" Being the key word (0)

Anonymous Coward | more than 10 years ago | (#7879553)

Minimum wage is a good form of price control (for labor).

Re:"Wise" Being the key word (2, Informative)

Anonymous Coward | more than 10 years ago | (#7874089)

FYI, the term you want is "free-market" or "laissez-faire". "Capitalist" is a commonly used shorthand for the same idea, but it's not correct, and if you're going to hit the issue that hard, you may as well use the correct terminology.

Re:"Wise" Being the key word (1)

Cyclone66 (217347) | more than 10 years ago | (#7874410)

Medecine needs price controls since demand doesn't change with price. Demand is pretty consistant regardless of price and supply (How much would you pay to save your life..)

Re:"Wise" Being the key word (1)

gmhowell (26755) | more than 10 years ago | (#7875813)

Medecine needs price controls since demand doesn't change with price. Demand is pretty consistant regardless of price and supply

Not true. Wrong on many counts.

First, commodity type care (routine checkups) is relatively cheap. There's no reason to think it won't stay that way. Where costs get out of hand is in specialty care. In particular, end of life care is incredibly expensive. Demand is not price inelastic. See, demand isn't just 'I want it', demand is 'I want it for this much, and I can pay for it'.

You've also ignored the supply side of the question. Let's say it's worth $50,000 to buy treatment X to cure your life threatening illness. But a provider will only do it for $75,000. You don't get the treatment. If there is an imposed ceiling of $50,000 for the treatment, fewer providers (a generic term, as it could be a doc, NP, homeopath, or some other quack) will provide.

You're on slashdot, so let me make a few assumptions. Let's say you are a programmer. Every person thinks that the program you create is worth, let's say, $10 per copy. You think it worth $50. The government says 'it's only worth $10, and that's all you can charge'. Do you continue to make that software or sell it new? Or do you find another vocation? And what about the /. kiddies who are getting ready for college? When they see that they can't set their own prices for their work product, do they get an MD, a CS degree, or just go get a law degree (who are relatively free to set their own prices)?

(How much would you pay to save your life..)

Again, it's not just how much would you pay, it's how much would you and can you pay to save your own life. (Or buy a widget, or a piece of software). I constantly see people piss and moan about correct technological terms on slashdot (is that a megabyte or a mibibyte, etc.), I expect the same for economic terms.

Humm. (0, Flamebait)

saden1 (581102) | more than 10 years ago | (#7873987)

If I can Pimp freely, I'll be happy. Both the real world and virtual world need Pimps to keep the peace between the Hoes.

Re:Humm. (-1, Troll)

Anonymous Coward | more than 10 years ago | (#7874195)

You fucking tool. Where's Daddy?!?

Re:Humm. (0)

Anonymous Coward | more than 10 years ago | (#7874529)

pimping your mom?

Re:Humm. (0)

Anonymous Coward | more than 10 years ago | (#7881335)

But.. my mom is dead... I'm very saden too...

But where's Daddy?

easy (-1, Offtopic)

Anonymous Coward | more than 10 years ago | (#7873994)

first post!

Meme exchange (3, Interesting)

Anonymous Cowdog (154277) | more than 10 years ago | (#7874032)

Virtual economies could be a good breeding ground for ideas about how to gain economic advantage. Just as real world memes are part of virtual economies, memes that emerge in virtual economies will cross over into the real world. So, for example, it should be possible to see the seeds of future criminal schemes by observing behavior on the edges of acceptability in virtual economies.

One positive aspect (4, Interesting)

DuckDuckBOOM! (535473) | more than 10 years ago | (#7874189)

of virtual economies is that they could enable experimentation with different socioeconomic theories without (serious) risk of screwing up real people's lives with the failures. I wonder how Marx's or von Mises' writings would have been affected if they'd had MMO simulators to play with?

Re:One positive aspect (2, Funny)

bj8rn (583532) | more than 10 years ago | (#7874400)

I wonder how Marx's or von Mises' writings would have been affected if they'd had MMO simulators to play with?

The Capital would have never been written, as Marx would have spent all the time playing Everquest.

Re:One positive aspect (1)

indros13 (531405) | more than 10 years ago | (#7882027)

I think that MMOs would have proved the futility of a purely communist economy. If "to each according to his need" indicated a constant reward level for playing a given game, no one would buy it. The diversity and varying magnitude of outcomes in MMORPGs is what keeps some people playing for several hours a day and keeps sales up.

Games are based on and support the capitalist principle that your risk and effort can return a commesurate reward.

Re:One positive aspect (1)

DuckDuckBOOM! (535473) | more than 10 years ago | (#7887491)

I think that MMOs would have proved the futility of a purely communist economy.
So do I, but imho Atlas Shrugged [barnesandnoble.com] settled that issue long before MMO sims came along.

(Be kind, people; my Nomex underwear [saferacer.com] is in the wash.)

I do acknowledge the possibility that some as-yet-uninvented variation or hybridization of Marxism might prove viable in the real world. I think it highly unlikely, but who knows what a powerful socioeconomic sim coupled to, say, an equally powerful genetic algorithm engine might come up with?

Re:One positive aspect (1)

indros13 (531405) | more than 10 years ago | (#7905491)

Dude, I'm in the middle of reading Atlas Shrugged. Crazy.

Re:One positive aspect (1)

Obscure Economist (555386) | more than 10 years ago | (#7886364)

I've been working on this idea for some time. Anyone seriously interested in supporting an effort to build a public use virtual world for research purposes - give me a shout. Castronova

Already happening (1, Insightful)

Anonymous Coward | more than 10 years ago | (#7874191)

Currencies not backed by gold are already virtual in many senses. Governments use the money supply all the time to affect the real-world.

Re:Already happening (1)

maxpower79 (738252) | more than 10 years ago | (#7887024)

Even with gold backing currencies, what is that really? It is just a rock with some arbitrary cultural and societal worth backing an equally arbitrary value placed on a piece of paper. 'Price Controls' by governments (and/or in games) can and will be circumvented to establish a market worth. It happens all the time.

Fucking economists (2, Offtopic)

PeterGreen (463502) | more than 10 years ago | (#7874248)

"the mere fact that Earth economies may suffer as people spend more time in cyberspace does not imply that humanity is worse off", as "the basket of produced goods is simply changing."

The mere fact that the economy may suffer as SCO spends more time producing lawsuits does not imply that humanity is worse off, as the basket of produced goods is simply changing.

Re:Fucking economists (1)

cgenman (325138) | more than 10 years ago | (#7874472)

What is it with this country's conception that anything which doesn't produce material wealth is inherently bad? Because videogames waste time Earth economies suffer. The same argument happend with Movies at the turn of the century and the "dread scourge" of pulp novels before that.

Here's a clue... People can't always produce. People need downtime to be creative. People need downtime to allow their muscles to rebuild and their minds to re-uptake neurotransmitters. If they weren't playing videogames they would likely be watching television or reading Slashdot. Saying that every moment of every day must be productive is, well, counterproductive.

See-Saw -ing between the real and virtual. (3, Informative)

leoaugust (665240) | more than 10 years ago | (#7874388)


A common theme throughout the paper is that the analysis of virtual economies will require slightly different tools and approaches than we are used to.

I think mostly existing tools were used beyond what they are generally designed for - i.e. expanded into a virtual world. The thing on which it is applied is different but the tools and approaches used are not.

Thus, our time in virtual worlds is more valuable if everyone we know is in the same world. Moreover, if two worlds compete and one has more players than another, wouldn't everyone have an incentive to join the larger world, so as to enjoy the larger network of society, communication and entertainment that it affords? Might such network externalities lead to a domination of this market by one player?

When I see two words "value" and "worlds" so close to each other the thought that jumps to my head is world of religion and its value. Do we have one religion ? Does the size matter when you can choose yours ? Does one religion dominate the world ?

Third, if there are rewards for solving puzzles, we can assume that a puzzle with higher rewards is preferred, holding challenge levels equal.

Don't know if there is such a correlation beween the two, because it is hard to pin down what "higher rewards" and "challenge levels" are. Firstly, how can you be sure that the coder has captured the "reward" or "challenge" value in a pattern of numbers ? And secondly, regarding preferences, it is well known that one man's cake is another man's poision. One way to visualize it is to see a see-saw in motion.

One of the major attractions of life mediated by avatars is the anonymity it affords, and anonymity requires a person to have exit options: other worlds to escape to if one's reputation in this one gets unpleasant.

I guess what it could mean is that if you find that you have committed a sin in your religion, it is then not a bad idea to shop around for another religion that doesn't consider it a sin - if the analogy made with religion is appropriate.

A player starts the game with a weak avatar, but gameplay gives the avatar ever-increasing powers. As power increases, the avatar is able to take more advantage of the game world, to travel farther, do more things, see more people. A person with a high-level avatar then faces a high hurdle in switching games, because in the new game he will start out poor, defenceless and alone again. This situation definitely locks in the game's player base, but it is also open to defeat by any number of schemes to reduce the switching costs. Surprisingly, no competitor to a current game has offered new players the opportunity to start their avatars at a higher level of wealth and ability if they can provide evidence of a high level avatar in another game.

Now it sounds quite like religion to me. I can just imagine the power structures you described and those described in religious history.

Given the expected growth in connectivity, interface technologies and content, there is reason to believe that this digital capital stock may eventually become quite large.

Well it depends on how you visualize the function of its growth. If it is linear or quadratic, then you probably could be right. If the function is of a higher order the growth of digital stock might find a limiting value, or even reverse itself. It usually happens when currencies of differnt nations are allowed to partially or freely float agains the currencies of other nations. And hopefully if that could be predicted, then it might be comparable to the accomplishments of George Soros - who broke the Bank of England.

Has anyone pointed out... (3, Interesting)

InfinityWpi (175421) | more than 10 years ago | (#7874746)

...the we live in a virtual economy already? I work for 40 hours a week and some virtual funds are direct deposited into my checking account. I then write a virtual check to pay my bills online. There's no such thing as money anymore; the gold standard never lasted, the paper standard is a joke, the digital standard is just a virtual economy with solid objects as the prize for playing the cubicle game. Hell, pay for your Everquest subscription using your credit card, pay the card with a virtual check, it's all just ones and zeroes!

Re:Has anyone pointed out... (2)

thelexx (237096) | more than 10 years ago | (#7875822)

I would beg to differ that the gold stanard never lasted. It has in fact lasted for thousands of years, and is still going strong, despite current world goverments attempts to ignore/hide it. Remember that thirty years or so, the period since the US 'gold window' was 'closed', is pretty much a blink of the eye in historical terms. And my sig is from a speech Greenspan made just last year iirc.

Re:Has anyone pointed out... (0)

Anonymous Coward | more than 10 years ago | (#7878151)

In historic terms maybe, but in economic terms that's several boom/bust cycles.

Reporting Virtual Earnings to Real Tax Authorities (3, Interesting)

G4from128k (686170) | more than 10 years ago | (#7876077)

I wonder when the U.S. Internal Revenue Service will require online gaming companies to report the earnings of players? At least some MMORG players [kanga.nu] are starting to worry about this issue.

The extent that virtual economies let "players" perform virtual jobs and earn virtual money that can be used to buy valuable products and services is the extent such virtual income is taxable. If enough players earn more money online than they pay in monthly fees, then said players are effectively gainfully employeed and profitable. If the virtual money is exchangable for real money, then it becomes much more likely that the IRS could get interested.

Hmmm... do virtual earnings count as earnings in foreign country?

Re:Reporting Virtual Earnings to Real Tax Authorit (1)

Zangief (461457) | more than 10 years ago | (#7881386)

<1000/1000hp 400/400mp 600/600mv 10000 gold>
The Tax Collector has entered the room.

<1000/1000hp 400/400mp 600/600mv 10000 gold>
The Tax Collector hits at you with an IRS form!
You lose 9900 pieces of gold.

<1000/1000hp 400/400mp 600/600mv 100 gold>
The Tax Collector leaves to the north.

Skill based trades in MMORPGs (1)

FauxReal (653820) | more than 10 years ago | (#7879139)

I don't play any MMORPGs... well I did play NWN for a bit but it's not a persistant world. (yet?)

I'm wondering though... don't some games have skill based trades? How will Kraginlor's +5 Armorsmithy hold out against online manufacturing outfits when selling stuff on ebay? I recall an article about some guys who had min wage workers playing Everquest or something like that to gain items to sell online. How about automated equipment factories run by computers playing games so the owners can post items for sale?

Will offshore MMORPG play factories undercut mom & pop's kids' profitability?

Maybe I'm just misunderstanding, but... (1)

Ayaress (662020) | more than 10 years ago | (#7882300)

In an avatar economy, however, the government can effortlessly peg many prices at any value."

I've played a number of online RPGs, and there's really nothing that can be done to control prices within the game short of putting item sale and trading and such in NPC hands.

I'll use the example of a game I used to play called Dransik. Several of the game's servers have had years of gold buildup in the player base, leading to virtual hyperinflation. When I first started playing, the best items in the game were 15 million gp if you were a good seller. Last time I checked, somebody could negotiate 600 million gp for a high end weapon on the Classic servers, and on some of the servers that use the game's newer graphics engine, gold prices are so inflated that gold is nearly useless, and you can't buy an item except to trade dozens of simmilar items, and even then, people often refuse. A single item sale thread on the messageboard will usually contain both "I want items if possible, not gold" and "I don't want those items. If I wanted a +4 broadsword, I wouldn't be selling my +5 sabre."

As long as you leave it in the hands of players, it seems inexorable that inflation eventually sets in. When a new server comes up in the game, it starts out good. People get a few +1 weapons, and give them to their friends, and they generate more and better weapons, and prices come down as things start circulating. Then, somebody gets a high end monster drop, and it's like a death knell for the server's economy. From there on, the game is just a struggle to generate wealth at the rate that prices increase.

Inflation and Delfation in MMORPGs (1)

ggwood (70369) | more than 10 years ago | (#7883652)

Inflation:

What you are describing is sometimes called "Mudflation" - in essense money can become worthless in muds (MMORPGs). It is a topic of discussion in Everquest.

This will happen if there is nothing worth buying with you money, or if money is so easy to obtain that it becomes worthless.

To have any sembelance of a real economy, game designers must make it really tough to get actual cash. They have to fix any exploits promptly. This requires lots of work.

Further, there must be some money or item sink in the economy. Money must be removed from the game or else it will pile up and become worthless. You can buy things off NPC vendors. Sometimes you do so for quests or to buy skills or equipment.

Everquest has outragously expensive horses one can buy. It's sort of a status thing. It has been a pretty good way to get rid of money. The horses cannot be traded between players, and can be sold back, but at a loss (around 10% lost). Further, everquest has consumable items such as food, drink, arrows, and spell components.

If they were to add houses (or other property) you could rent or NPC's which you could pay to cast spells on you it could take loads of cash out of the economy. Other suggestions are to make armor and weapons degrade over time and thus have to be repaired. Some kind of money sink is necessary. Ideas abound for how to best do it.

Deflation:

Items that drop in game and are tradable between players will generally become worth less over time. Everquest has added lots of content over time and old gear that was considered great is now virtually worthless. It's as if the best sword used to be +5 but then the +6 sword comes out. As people are motivated to run out and get a +6 sword (even if it takes lots of real life time and effort) they, invariably, have to sell the old +5 one and thus with enough people doing so the lesser ones will become worth vastly less, and on down the line.

To impede this, gear has to leave the system. One way is to have NPC vendors buy it. How much is that +1 sword worth? Well, if a vendor will buy it for 100 gold coins, probably you will not sell it for less than that. (But now you are adding money to the economy, thus contributing to inflation...)

One way of resolving this is to make the new, +6 sword "no drop" meaning it cannot be traded between characters. The one who picks it up has it, forever. This also prevents "camping" where a single group sit at a location to "farm" it - endlessly gaining the same or similar items over and over to sell later. A way to inhibit (but not stop) this is to mark items "lore" which in Everquest means you can only have one. Even though with a little effort you can run off and sell one and then come back to get another, that extra effort makes lore items much less attractive to "farmers", and thus inhibits farming, a bit.

Another, harsher, way of controlling items is to simply allow them to break (or ware down) after extended use.

Player Flux:

New players are generally good for the economy because they buy up the low end items (causing them to inflate a bit) but they also generate cash for those of higher levels to buy the better stuff - thus keeping the economy moving.

Everquest added a new playable race last year, and it raised prices alot as people made new characters and put some money into them. I personally sold tons of otherwise worthless stuff (which otherwise I would just sell to a vendor). There is a new class coming out soon and I expect similar effects. Thus, old people starting new characters can have a big impact.

Players leaving generally dump all their equipment and money to friends. Of course, all their "no drop" stuff just vanishes. It is expected that as new MMORPG's come onto the market, there will be loads of new high end gear coming to market, which should deflate costs. However, who knows how much money these people have. Perhaps the vast wealth of these people being given away to friends will actually inflate prices (probably, again, on the high end gear). Who knows.

Everquest (Eq) is allowing us to put all our junk into a bin and some, as yet unknown, boon will be given to our Everquest II characters as a result. Probably this is a way of keeping customers within the family as much as an economic tool. I don't really plan on migrating to Eq II. I really have not experienced all that much of Eq I, and I began playing in 2000. I just don't play that much, and there is lots to do.

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