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Learning About Real-World Economies Through Game Economies
Reuters has a report about research being done on the in-game economies of MMOs like EverQuest II and World of Warcraft to better understand much larger economic situations in the real world. The games are used as case studies where researchers can do controlled experiments that they couldn't necessarily attempt if real money or goods were involved.
"After studying 314 million transactions within the fantasy world of Norrath in EverQuest II, including trading in-game goods like armor, shields, leather, herbs and food, the researchers were able to calculate the GDP of one of the game servers (the back-end computer that hosts thousands of players in one world). As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months. 'We have seen that kind of volatility during times of war and in developing nations in the real world,' said [Dmitri Williams, assistant professor at the USC Annenberg School for Communication]. 'Our own economy has turned out to be less stable than we'd all assumed.'"
In the real world you don't have unlimited resources. In the real world you can't release an expansion and suddenly introduce new products to replace everything someone owns. Studying in game economics can be useful as an exercise or example of how some economic principles work, but collecting data from MMO's and then trying to use that information to explain how the real world works?
While I myself enjoy playing the MMO economy micro-game, they are far too simple to really map anything close to the real world. Or at least I should say WoW's is. Some of the less popular MMO's have very realistic economies involving business entities, more niche goods, and even a kind of country proxy.
The examples of what the researchers have discovered also strike me as academically uninteresting (even obvious) and make me wonder if this is an excuse to play some games at work....
Right... as if someone with knowledge of real world economics could actually be put in a place of authority.
My thought was something like this. Specifically, from the summary:
Well let's see now. We have fiat currency instead of representative currency (an example of which is the gold standard). Furthermore, the way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?
The real joke, though it's not a funny joke, is that this system as we know it came from the Great Depression. Its purpose was to ensure that such depressions would not happen again. By that I mean, this is how it was sold to the public. Isn't this typical, that an undesirable system that would not otherwise be accepted is proposed during a time of crisis and becomes entrenched? It's not like we have never seen that pattern before...
It is a miracle that curiosity survives formal education. - Einstein
I agree with your point; on one hand, there are a lot of data that can be collected from the economies of video games. The challenge, as you mentioned, is making that data relevant outside of the realm of that video game (or of video games, in general). I agree that the games probably can't be valid models of real economies (or cities, etc.).
That said, I'd not be surprised if they could extract useful behavioral information out of the data. Not information about how the economy works, but rather how people act when faced with various economic events and circumstances. Players could probably be mapped to social and regional demographics by qualities such as their characters' net values, activity, and primary sources of income. Patches, updates, and expansions can be mapped to technological breakthroughs and innovations, and resource scarcity and overfarming can be mapped to depressions or natural disasters.
There are plenty of real-world economic events that might be mapped and studied to research how the players in various "classes" react, such as:
To me, the practice seems legit (if done carefully), although I doubt any results are particularly useful by themselves.
"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"
The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT. Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.
The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.
Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.
Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.
Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.
Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.
#1 You can only generalize to the population studied
Is there any reason why a computer savvy person will act so differently than someone who does not use a computer? We're talking about making decisions based on many fundamental human drives such as self-interest, reciprocity, emotions, etc. These go all the way back through evolution.
Anyway, currently economics spends most of its time making sweeping assumptions about the whole of humanity based on the most simple theories about what drives behaviour - so any attempt to study real people is a step in the right direction. The current economic crisis was all about perceptions of risk, short-term interest, misunderstanding, and eventually panic - all experienced and acted on by real people.
The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.
no they had not and should not - running huge deficit for years and paying interest on it is not worth the temporary gain. Governments should never give up to such blackmail - "omg, if you won't give us fuckton of taxpayer's money the world will end!" The world would change somewhat but that's it.
Government intervention equals central planning - it's inefficient and produces a lot of waste and misallocation of resources. It also perpetuates faulty schemes and in effect economy is less flexible and unable to adapt. This is not what viable economy is about.
"This system is just not sustainable. How could it ever do anything but ultimately fail? Who are these people who expected it to be a paragon of stability and sustainability?"
The same thing was said about the gold standard, every tom dick and harry intellectual thinks they "know" how to run an economy I call 100% BULLSHIT.
Lol! I guess you know better, and we should trust you instead? As well as all the people claiming they know how to "run" an economy but somehow keep getting proven wrong.
Especially austiran economists, some of the most dogmatic, ideologically driven people on the face of the earth.
Not sure what "ideology" you think the "austiran"[sic] economists are espousing. More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.
The real issue is that because society has become so specialized and because we use money as a store of value it's one of the KEY components of why society is so unstable because in a specialized society money must constantly be circulating between people and real goods, the problem is jobs and industries are not permanent in economies, they are constantly in upheaval being moved around, created, or destroyed because and because we only pay people if they have a job or are working, the people without jobs for any length of time start to put stress on the system.
Money ideally is supposed to keep track of debt's and obligations but here's the thing: As a medium of exchange it can't deal with the real world upheavals complexities of specialized society.
Interesting theory. Should I subscribe to your newsletter?
I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better? Even if what you say is true, it doesn't explain why at times (like today, and the Great Depression) nearly all industries are faced with contraction at the same time, and all of them shed jobs, instead of just one or a few sectors. Austrian theory explains this very well.
Even if austrians got their way by eliminating the fed they would have all the same issues under the gold standard, because monetary policy is only one aspect of the economy, the other is to keep money constantly flowing between those who need it (for necessities) and those who produce them (the businesses), the problem is their becomes large asymmetries because of our technology and ability to do more things with less people, which leaves a huge surplus population in a precarious, temporary and unstable jobs as the march of tech moves on and people simply can't keep up with the real world technological and political changes taking place.
But it's exactly the Fed and central banking policies that interferes with that process. By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.
Inflation is nothing more then debt and risk distribution, if Group A charges more for necessities B, the group with the least money is constantly being indebted by inflation.
Certain kinds of inflation (not all kinds) of course is an aspect of using money as a medium of exchange.
I don't know where you got this idea. Inflation is
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
The difference with RL is that Blizzard will never bail The Big Guild going bankrupt because too many wipes/enchantments/etc etc..., but RL governments had to.
Regarding "had to", that is because in RL the equivalent of "The Big Guild" owns the equivalent of "Blizzard". If WoW allowed the players to purchase their own government, like we do in real life, then it would be a fair comparison.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
More like they have developed a theory of economics that has been proven to predict results over and over again, including the current state of the economy. keynesians keep claiming that Austrian school is old, outdated, discredited. And yet their own theories of how they should be able to use central planning to produce bust-free perpetual growth somehow never works.
Somehow, I feel like I look at a post that was written three years ago.
xkcd is not in the sudoers file. This incident will be reported.
Why not look at the Eve online economy? The Eve system is a lot more flexible, largely player driven and a LOT more players involved. This should more accurately model real economies.
Then of course, eve have already had a lot of attention for this reason, so perhaps they wanted to do a more novel study.
Interesting theory. Should I subscribe to your newsletter? I really can't follow what you are talking about here - it sounds like you think money itself should be eliminated. Do we go to barter? Is that supposed to "keep up" with upheaval and complexity better?
The problem is that money as a store of value is problematicc because people can't just wait forever for food/electricity/clothes/housing, an austrian run economy would quickly devolve into one where there would revolution I have no doubt, because they'd be forced to realize the world is a physical place and their theories of human action break under constraints of physics and physical systems and their transformation.
Any theory that does not account for how the world actually is physically integrated into the economy is laughably naive.
But it's exactly the Fed and central banking policies that interferes with that process.
But you're missing my point, the instability would not go away! You're missing the physical aspects of the economy, if x amount of people are umemployed for Y time and their money is quickly depleting, you can't have that happen to a huge population without huge political discontent and in the worse case scenario revolution.
Everyone (anyone who is anti-fed) assumes that moving back to a gold standard or some other currency is going to fix thing - it is not, you're just trading one set of policies for another, the fundamental problem of specialized society connected by interlocking and highly unstable trade networks, and technological displacement is still there.
By making credit artificially cheap (or artificially expensive), people make wrong choices about where to invest capital. Then you have a unsustainable bubble that will inevitably collapse. Creating money doesn't create extra consumers - it just puts industries and consumers deeper into debt until they can't continue to pay it - at which point the overdue correction drags the entire house of cards down.
Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not. People are the cause of bubbles not anything else, and because we live in a specialized society the effects of too many people failing at once is transmitted through the whole system and that means I get fucked for someone elses stupid economic decisions, austrians take a hyper individualistic view of the economy that is simply not real. Group of persons actions A far away from me can economically have negative effects on me without my consent.
Theit whole big push of "no initiation of force" is a farce, since monetary systems require the initiation of force else you would have rampant counterfeiting.
I don't know where you got this idea. Inflation is too much money chasing too few goods. Prices go up because there's more money in the system and production of goods is either stagnant or declining. And all this mis-allocation of resources is caused by central planners like the Fed sending the wrong signals to investors and consumers.
No there are different kinds of inflation, this is the whole problem to begin with. Once someone is taught somethign about economics by people they admire, or they are ideas they fancy. They are usually never willing to question it because that's what they've been taught. Inflation occurs for many reasons.
I'm not a big believer in economists understanding of inflation because the physics of how economies physically work. Once you stop thinking in terms of theory and in temrs of observable physical systems you come to understand money is a political conveneience to distribute debt and obligation, since money itself is a double edged sword as a medium of exchange.
Now I'm not saying I have all the answers, but I do know that the way we currently think about money and how we calculate the allocation of resources and obligations in society has
They ignored EVE because it's nearly as complicated as the real world and just as messed up. They obviously didn't want the hassle of studying anything of true significance.
Fucking with the economy? During the 90s and 00s, the economy had the least regulation since the great depression. Reagan and the following presidents all saw to that. The Austrians got what they wanted. Of course, they forgot to include the corruption that comes with it. They always do, because Austrians economy is like a game economy. Totally unrealistic when actually implemented in reality.
No, Austrians didn't get what they wanted - interest rate was not decided by the free market forces but by arbitrary decisions of the FED. When people rapidly get loans in ridiculous amounts, it should end up quickly raising interest rate to the 2-digit range, yet it was kept near 0 because it stimulated the economy, kept that frightening R-thing at bay and produced nice GDP growth numbers - debt driven consumer spending is so good and financial institutions leveraged 50:1 have ridiculously high profits to show to their shareholders. Politicians are happy, voters are happy, disaster is around the corner. Meddling with interest rates in a way FED did is anything but Austrian economists' wish.
But if everyone defaulted on all their loans, you're saying we'd end up with a negative money supply, rather than just a very small positive one?
No:
(X+Y)-Y=X
even if Y>X
For clarification on this check what the Federal Reserve Bank of Chicago has to say: http://www.chicagofed.org/publications/fedcentralbank/fedcentralbank.pdf
To achieve this goal, the Fed works to control money at its source by affecting the ability of financial institutions to "create" checkbook money through loans or investments.
If the Fed confirms that financial institutions create money through loans can I stop having this debate with people over whether this is actually so? Here is the frightening reality: most people in our society are trading their time and services for something they have no clue as to the origin or real value - dollars. This is a site that represents a higher level of education than most and look at the threads on this topic, you will find an appalling level of ignorance regarding a good we spend a great deal of effort obtaining.
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Firstly, why should they be falling? What does having the price of everything fall or rise achieve that an increase in the money supply with constant prices does not?
Well, your premise was that you could increase the money supply without inflation when "everyone decides to hang on to their money more tightly". The response that should be to drop prices, so people will buy more. Not sure what else you were referring to - if people are holding on to money, they are not buying goods, yes? So maybe because prices are too high?
Secondly, price falls are a very difficult process to a point where this process doesn't really work. This is really the nub of it, if prices were not sticky the gold standard would work. Workers and unions defend wages, firms may need their input prices to fall before they can fully reduce their output prices, competitors wait for someone else to move first, homeowners hold out for house prices which are months or years out of date, etc. Prices stay high for months or years and resources get underused, including labour. If everyone could agree to reduce their prices together there'd be no problem, but it's a coordination nightmare compounded by money illusion. Why bother when the state can adjust the money supply? It's like changing the clocks to do daylight saving....we /could/ have the same effect by all agreeing to adjust all of our schedules, opening times, etc. all at once on the same day whilst keeping the time the same. But it's much easier to change the defined time of day.
You're making a preconceived assumption that everything has to be centrally planned. BTW: when industries do this it's considered price-fixing and is illegal. Somehow government or the Fed should do it instead? Why not just let the prices correct themselves. If people aren't buying buggy whips, maybe the buggy whip factory should just shut down. If people aren't buying much wheat, farms should cut back on production. If a labour union won't allow a business to lower wages or layoff workers even when people are buying less of their product, the company should go out of business. Yes, that means some will go through hard times. But that's better than putting everybody through hard times to keep a business going that is doomed to failure anyway.
Which is just saying that the other side of increasing the supply when the velocity of money falls is that you have to reduce it again when it rises. That can be done. It won't be done perfectly, I'm sure, so there'll be too little or too much inflation; but that doesn't mean that a fixed money supply is better.
Whether it's a fixed money supply or not is not the issue. The issue is that millions of people are better at deciding where that level should be is orders of magnitude better than letting a small group make that guess. They are far more likely to be wrong.
The policy response is a response to irrational decision making.
No it's not. It's a response to its own prior poor policy decisions
I'm sure that amongst the 25% unemployed in the depression there were butchers who wanted bread, bakers who wanted meat, farmers who wanted tractors, engineers who wanted corn, etc. There must have been many valuable trades which just didn't happen because the normal economic decision making systems were broken.
Yes, they were. Broken by poor policy decisions. For instance - food prices under FDR were considered (by farmers) too low, so the policy response was to destroy crops and pay farmers to not grow food. Yea, well... it worked to raise food prices, but how did that really help anybody else?
Why should it be driven by those things? Relative prices should (in the absence of specific market failures, etc, of course), but why the absolute price level?
Because that's how rational resource allocation occurs. If a loaf of brea
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.
I don't think they knew, at least at the beginning of the crisis. It wasn't obvious at all. Anyway, your statement makes any statement about economics irrefutable, because we can always argue "they knew the government will do this and that". I think you would have to come up with proof that they knew that (for example, internal communication among banks) for me to believe this.
And how do you determine what is "real growth"? We had lots of growth during the dot-com boom, financed by cheap debt. Yet, it couldn't be sustained. I wonder why? Keen (and Minsky) don't seem to be able to explain this. They continue to proposed the same policies that failed then, and are failing now.
You can't determine that - that's whole point of investing. But the point is, real growth does exist - we have advances in manufacturing and society. Albeit it isn't 3% per year like GDP shows.
Actually, the opposite is true. You don't get "growth" by holding onto money, even if it's gold. Even on a gold standard some inflation occurs. The only way to increase your saving (or keep it from losing value to inflation over the long term) is to invest that money in some value-creating enterprise.
Well, if you are saying that you get inflation under either system, what's the difference? Ideally, you want to increase money supply to match the real growth (which is tricky, because you don't know what it is). If you don't supply enough money, the value of money not invested will grow by itself. If you supply too much, you will get inflation. The gold standard fails with the first situation, and the FRB may fail with the second. Do you also realize that the gold standard is a limit case of FRB (when the fraction is 1)?
Exactly. Especially when, for instance, the Fed keeps interest rates artificially low, creates a housing bubble, and people borrow money against and artificially inflated home value. If the interest rates were allowed to go up in response to the reduced savings, the bubble would not grow so large and the adjustment would be short and easy to deal with, instead of creating a global crises like this one did.
So you agree with me that the real problem has nothing to do with FRB, but rather with lending (with interest) in itself?
> There are two ways in which people can deal with one another. Money, or guns.
Spoken like a true virgin slashdotter.