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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.'"
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.
The problem with that idea is that the game economy is built with assumptions in mind. These assumptions will generally be based on theoretical economic models. So generally all you achieve with such experiments is confirm your built in beliefs. Chicken, egg anyone?
A similar claim was made about SimCity when it was big, that it would teach about urban planning, but it had so many assumptions built in to be worse than useless.
These experiments are not as useful nor controlled as you may think. Let me break down into some experiment design principles here:
#1 You can only generalize to the population studied
--Thus your demographics will be that of a more computer savvy user, with leisure time. This is NOT a representative sample of a normal population. When using regression methods you will get a homogenous result only from 'game performers'. These experiments are not valid unless you can prove that there is no purposeful difference between this population and the general population.
--It still can provide interesting insights, but any quantified data must be taken with a grain of salt
--The population may have one net effect, but perhaps a different type of agent/actor would have an OPPOSITE or equalizing effect (games are an artificial setting)
#2 Process defined by agency
--Here the markets are designed by an all-seeing game developer. I don't know about you, but many MMO's I have participated in had lackluster markets due to poor UI or the mere fact that it is a new market.
--Product innovations are limited or non existent, and users cannot refine markets based on their experiences. These days the most interesting economic studies are looking at PROCESS which is understood much less than outcome. Neo-classical economic theory does a great job at explaining outcome, but is horrid at process. That is why many market failures are not forecasted, but instead studied post-mortem.
You can learn tons from games. Yesterday was explaining that when the taxes get rolled into the free parking kitty, money doesn't leave the system- it only gets redistrubuted leading to massive inflation from passing go. Also was explaining dice statistics and why it was better to build a house on this square versus that square based on the two people 5-7 spaces away.
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.
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?
I'll limit the scope of this comment to World of Warcraft as that's the one I have personally played. I would not be surprised if the other MMOs mentioned are similar, I just don't know for certain that they are.
I think the appeal is that it's a true laissez-faire free-market economy. Among those, it's unusual because the game rules effectively prevent any one player or group of players from forming a monopoly and locking out competitors. So I may have the market for healing potions cornered, but there is nothing I can do to prevent you from gaining crafting skills and harvesting herbs and making your own potions and competing with me. Your potions will be just as good as mine, and any herbs you harvest won't be available to me until they respawn, at which point they become available to both of us again.
I can see why this would be interesting to an economist. It incorporates a lot of our notions of what a free market is. In the real world economic freedom is generally considered a desirable thing, at least until players are so free that they can form trusts and otherwise monopolize markets. So in the real world, anti-trust laws and other government regulations provide the necessary restrictions that the game rules provide in the virtual world. If nothing else, it can provide a way to explore the degree to which such regulations are necessary and what happens when they are minimal. Perhaps this is to an economist what the computer simulations are to such scientists as physicists and astronomers. They can use it to model something based on how they think it works in order to refine their ideas of what works and what doesn't.
It is a miracle that curiosity survives formal education. - Einstein
"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.
WoW also has a fairly large black market in the presence of illegal gold sellers.
If anything, the economics of MMOs are far less interesting than the socio-political aspects of the game. WoW is more or less set up to maximize character freedom. The police (GMs) are relatively ineffective, and apart from a few obvious things you aren't allowed to do, like call other players faggots in public chat, most anti-social behaviour is in practice insufficiently policed or not policed at all. I'm talking about things all the way from ninja looting and node stealing up to the use of illegal hacks (like the underground mining hack, for example). The small percentage of outright asshats on any server seem to be sufficient to prevent a general climate of trust from forming (even though most people are nice, and helpful).
The guild system is the only way where people can build decent trust networks, and these of course require human leadership. Even then, a good guild (meaning a guild with reasonable leadership and adequate policing) is hard to find and it can't get too large before it's too big to serve that function. But Azeroth as a whole suffers from severe social dysfunction.
I guess it just shows to go that any social environment would work just fine if only a way could be found to get rid of the 10% who are hell bent on exploitation, cheating, griefing and bending the rules to suit themselves (and these are the people who howl loudest at any attempt to fix things). WoW's economy suffers from many honest players having a disincentive to enter the market, because people who hack and cheat have an illegal competitive advantage. It's really no different from the real free market or the real world in that respect (a friend of mine who is a cop pointed out that the people who barely stay within the letter of the law are often as much of a social nuisance as genuine criminals - knowing some people I've seen in business, I am not surprised).
I think WoW stands as a living counterexample to all those who desire a lightly policed social system based entirely on consent.
"by that I mean people who don't sit on slashdot all day wondering why everyone else isn't building robots" DECS
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?
There is nothing unsustainable about it. The X dollars in circulation just have to circulate fast enough. If fractional reserve banking has a flaw, it is the same thing that is its main advantage, and that is that it adepts to the demands of the economy. It amplifies both good and bad intentions of making use of money.
In the last 30 years there has been a lot of bad intentions going on, building on bubble after bubble. But blaming it on FRB is just plain wrong. There are real things in the economy that are unsustainable. Having the debt levels rise faster than the income levels would be one such thing. Having the lower and middle class owning a lesser and lesser percentage of the wealth would be another. And it isn't difficult to find more examples.
Having said all that, there are of course faults in how FRB is implemented in the US. There is for example no reason why a government should need to get in debt just to create money. That has nothing to do with the basic idea of FRB. Having a private institution running the money supply is another very stupid idea. Finally, you need regulators and law makers who generally aren't corrupt to ensure that the FRB system isn't abused. And that last thing is something that doesn't exist in the US right now, or most banks would have been shut down already, just by looking at their balance sheets. The only thing keeping the banks alive is corruption.
is that this system as we know it came from the Great Depression
Yes and no. The system today mostly has its origin in the 1980s. It may look similar to the old system, but all safeguards and general ideas of sanity has been removed as an ongoing process to promote "modern" capitalistic principles. The idea of balance has been totally abandoned and instead the concept that anything is right as long as it produces higher numbers has been promoted.
"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
Dear Parent, I presume you understand the fractional reserve system so you can skip down to paragraph 4 whilst I provide an Economics 101 refresher for the gallery (and this really is first-semester stuff; I taught it earlier this year):
You and all your friends deposit money at the bank. The bank holds a fraction of the money in reserve (hence the name), at minimum the amount the law specifies, usually plus some amount X. We'll come back to this. The rest of the money it lends to people who want to borrow it; they pay interest, you get interest, the bank takes a cut, hooray.
These borrowers spend the money, and the people who get it stick some of it back into the bank, where the cycle starts afresh. It depends on how much money the bank holds in reserve and how much the populace deposits but, yes, usually there is more debt around than originally produced currency.
Now, you claim that this is a Bad Thing (TM). You don't state why. Presumably you are relying on the intuitive logic that having more debt than official assets can't be good. That intuition relies on the following crucial point: having more debts than assets is only a problem when people try and collect on their debts. Amazingly, this very rarely happens.
You have the absolute right to go to the bank and demand your money, in bar. All of it. Buy who does that? Practically no-one. You ask for a portion of it; some here, some there, more at Christmastime and during the holidays. So long as the banks have enough money to give everyone what they want – and this is the amount X from above – holding the rest of it would just be inefficient, since none of the depositors want it and there are plenty of borrowers who can do productive things with it. Fact: if the banks decided to hold more money in reserve, the government/central bank would simply create more 'original' dollars until the effective level of money is back where it was.
The fractional reserve system does have its problems. But the problems lie in deciding how high the reserves should be – too low, and when people do decide they want their money everything comes crashing down (e.g. AIG). Too high, and businesses can't borrow money and productive potential lies wasted (e.g. the current situation in much of Europe and the US). But the system is not inherently flawed. If the right level of reserves are held – and this is usually the case – the system provides a much more flexible and efficient supply of money than a representative currency.
Antiquis temporibus, nati tibi similes in rupibus ventosissimis exponebantur ad necem.
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.
"As real as real? Macroeconomic behavior in a large-scale virtual world" (links to the abstract with option to download)
Antiquis temporibus, nati tibi similes in rupibus ventosissimis exponebantur ad necem.
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.
You say that it is sustainable, please elaborate. Because unless you're ignoring the presence of interest rates, the money owed will always exceed money existing. This ends with people or businesses going bankrupt unless there is perpetual growth
This is basic economics, and has little to do with FRB. But anyway, the answer is that money circulates. As long as those who lent out money uses the interest they collect to buy stuff from those in debt, everything remains balanced. Theoretically I can pay back a $100 loan with a single dollar bill, as long as I pay it back $1 at a time, and the one I pay it back to keeps buying stuff from me.
Of course, the real problem here is that borrowing to consume is bad as you won't have anything that the borrower will want to buy after you consumed, so you won't be able to pay him back. Borrowing to buy something at bubble prices is also bad for the same reason. You won't be able to pay back what you borrowed.
Borrowing is best done on actual stuff that increases productivity. Specifically, when the interest on the loan is less than the productivity increase. In that case both parties of the transaction profit by getting part of the productivity increase.
That's a pretty long-winded way of saying you don't understand economics. But at least it's a good starting point.
You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now. Maybe some day we could transition to something like the "reputation system" envisioned in Accelerando, but we have to work with what we have to work with now.
The arguments you make point to Austrian economics working better than anything out of Keynesian, as it is closer to following physical assets than the artificially controlled fiat money that Keynesians prefer. Yes, even with real assets being used as a medium of exchange, there will be bubbles and busts, but they will be very much limited to specific industries or companies, rather than across the entire economy like happens now. But that's because entrepreneurs have to make guesses about the future - it can't be predicted in any deterministic way, since it involves human behavior. But it's a better system than letting a few central planners make those guesses for everyone, because they can never be as accurate as millions of people making their own guesses based on experience and self-interest.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
He notes, for example, that changes in M2 are preceeding changes in M0 (which by itself invalidates Austrian theory, by the way).
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.
But not always the debt is unsustainable - if you have real growth, then growth in debt can be sustainable. That's the basic advantage of FRB with respect to gold standard - unlike gold standard, FRB can adapt money supply to finance real growth.
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.
With gold standard, it pays off to hold on money during real growth, because money increase value, and it means nobody wants to invest.
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.
But they are both inherently unstable, because the debts can grow even if there is no corresponding real growth.
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.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia