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Norman Maynard of the Economics Department at University of Oklahoma sends us his paper, which proposes to use virtual worlds to test different approaches to economic development. The paper is available here.
ecastronova on Nov 12, 2006 in Economics | Permalink
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I'm a little unsure whether he is proposing extracting experimental value from in-game MMOG economics or from the RMT aspect of MMOGs. There is probably a lot of potential value in the latter, while in my opinion, relatively little in the former. Admittedly, I need to reread his proposal more considerately.
Nov 12, 2006 at 10:41
I'd like to agree with the comments of the previous poster, but i don't know what they mean.
Nov 13, 2006 at 06:28
Another set of random comments (for whatever they're worth):
1. Although it was good to see the legal aspects of virtual-world economies referenced, I didn't think enough emphasis was placed on how "code is law." It's such a crucial point about virtual worlds that it really needs to be spelled out bluntly for someone who's not familiar with these things.
2. Except for a glancing reference to Second Life, I don't recall seeing any discussion of player-created IP within the virtual world. This is important because it determines whether the only goods available in a virtual world are those defined by the developers (thus limiting economic activity), or if users are able to add to the total wealth of the world by creating new capital.
3. The paper did not consider whether in-game goods are wholly produced by players or if some goods are produced "out of thin air" by NPCs. I believe the significant impact this design choice has on price-setting makes it worth at least a mention in a paper like this.
4. I was puzzled by the repeated references to "less developed countries." Does economic research require a moral justification? I thought the paper was worthwhile without needing to be justified as helping less developed nations in some way. A better understanding of economic behavior would benefit everybody.
5. Finally, the whole point of the paper seemed to be to show that virtual worlds are not only similar enough to real worlds to make good realms for studies of economic behavior, they are in fact superior to real worlds because their structural assumptions can be more tightly constrained. I was persuaded of the former, but I'm not sure I was persuaded of the latter. Considering its centrality to the paper, I'd have liked to have seen more facts and reasoning to support the claim that virtual worlds actually make better testbeds for economic theory than the real world.
Overall, interesting paper; I look forward to seeing any follow-up work.
Bart Stewart |
Nov 13, 2006 at 16:39
Without reading the paper...
"...which proposes to use virtual worlds to test different approaches to economic development."
This has been my attraction to virtual worlds. Want to see if bartering can work on a global scale? Create a MMO that does not use any in-game coin. Want to see whether supply or demand is more powerful? Create a MMO with uber items and tweak the drop rate and stats and watch the market prices.
Economics suffer from the lack of being able to do bench research. With an MMO, an economist can begin to engage in a little 'hard science.' Tweak this variable and watch the results. Tweak that variable and watch the results....
Nov 13, 2006 at 18:28
dave, this is exactly what my paper is proposing. It's not that virtual worlds are "the answer" to development, of course. They do, however, provide more control than the current method of copying legal institutions from successful locations and hoping they have the same effect in a different environment, and more realism and scale than most experimental structures (typically a few dozen university students).
Bart, I appreciate the comments, and will try to address the issues you bring up in a later revision.
Norman Maynard |
Nov 13, 2006 at 20:00
This is very interesting paper which has much of inspiration. I largely agree with Maynard’s argument, but I've got two comments.
1) The idea of using virtual world as test-bed for economic theory is nice, but the problem is that most of virtual worlds have not been designed for such scientific experimentations. If we are to get any meaningful empirical/theoretical finding from virtual world, making game design specific for experimentation would be critical. It is right to say that the social environment of virtual world is more controllable and observable than real one, but it is totally another problem to control various factors according to the exact intention of researchers. If it is not possible, empirical studies on virtual worlds might be as dirty as those on really existing economies.
2) More fundamentally, I'm not so much sure that the analogy between the virtual and the real is sustainable. For example, if there be 'selection bias' in virtual world(What kind of people does enter into Second Life?), behavioral patterns of players in the game are not general enough to explain those in the real world. Also, decisively, To my opinion, the natures of production, which is a central problem to economic growth and development, between two world are totally different. Is it possible to apply Solow's basic growth model to the virtual world? Is it possible to make a theory based on human capital in the virtual world? It is very interesting question with respect to economic growth theory, but also really challenging.
Huhh, Jun-Sok |
Nov 13, 2006 at 21:08
I share Huhh Jun-Sok's skepticism. Virtual worlds are simpler than real life, but not from any desire to systematically eliminate economic variables. They are businesses, not experiments. Studying them is a bit like examining all the ticket stubs of visitors to a State Fair. Sure, you can find out some interesting stuff, but it is only one piece of the visitor's total life. Maybe only a utility of 10% :).
Nov 14, 2006 at 00:45
Nov 14, 2006 at 02:17
Studying MMOs is one thing, creating (or at least populating) one specifically to test a certain economic theory sounds like quite a challenge. Dealing with the population backlash from coercing an existing MMO to play poke-the-monkey with its internal economy sounds like a lot of fun too.
Ace Albion |
Nov 14, 2006 at 05:27
Agreeing with previous (non-spam) comments:
The paper did not consider whether in-game goods are wholly produced by players or if some goods are produced "out of thin air" by NPCs.
My primary concern with analogizing real world economies to virtual ones is the fundamentally different notions of "production".
Whether a WoW/EQ style MOB-as-wealth-generator model or a SecondLife zero-friction-replication model, either production function has no analogy to real-world production. Even real-world production of "virtual" items, like music or software, involve realistic capacity constraints, dynamic competition, arbitrary legal and government barriers, reflexivity, and competition for inputs to production.
How useful are observations of VW/MMO macroeconomies when we know that the microeconomic fundamentals are largely unrealistic? I can make the developing world a very wealthy (and then hyperinflation ridden) place if I can figure out how to inject currency into the system by having people harvest infinitely respawning coin generators with zero intrinsic opportunity cost.
Nov 14, 2006 at 10:06
Any virtual economic model in which the performers are going to behave in a manner that is reflective of their real life behavior will have to be so close to having real life economic value(s) that it will be, essentially, not a model but an actual market of some kind or a simulation of an existing market.
In essence, I will not truly treat a game-piece as a dollar unless I have a very, very strong motivation (almost a dollar's worth) to do so. And if I do have such a motivation, you have not created a model, but an actual "situation."
Also, unless all players are equally motivated, the simulation will be inherently skewed. We see that now with games where sweat-shop workers farm gold for RMT. The in-game economics for "Player 1" vs. "Player 2" are insanely unbalanced when you compare someone who is paying $15/month + whatever they're shelling out for leveling, armor, etc. vs. the guy who is being paid to generate those levels and items. 1 gold does not equal 1 gold when, for me, 1 gold means leisure time and pocket money and for you it means income.
I think you can observe interesting behavior, of economic and all other kinds, in virtual worlds. I think that trying to test whether or not an economic model would work in RL by seeing whether or not it would work in a VW would be like testing a tactical, wartime battle plan by trying it out with football players first. Interesting? Sure. Directionally fun? Maybe. Anything I'd use to actually bet my hide on? Nope.
Andy Havens |
Nov 15, 2006 at 21:49
Economy 2.0 | The New World You Will Never Step Foot In!
There is a new burgeoning economy that I call it Economy 2.0. This new economy is a growing, it is global, and, according to a recent story in the New York Times, sweat shops in China have already been setup to start profiting from it. The interesting thing about "Economy 2.0" is that you have probably never heard about it, never stepped foot in it, and it is 100% virtual.
Although some of the transactions in Economy 2.0 happen on eBay, I am not talking about the people buying and selling real goods and services, these transactions don't actually take place in the World you live in. Massive multi-player online games (MMOs or MMOGs), like Everquest, World of War Craft, Ultima Online and Second Life each have their own virtual worlds, and these virtual worlds are creating virtual economies. By some estimates, the traffic in virtual goods is worth as much as $880 million in real cash every year.
Stick with me here, this gets really interesting.
Each of these virtual worlds have their own currency and these currencies can be bought and sold with real dollars, yen, euros or pounds. In fact, some sites are being setup now to actually track the valuations of these currencies. Want to know the value of 1 Million WOW Gold pieces, or linden dollars compared to US dollars? GameUSD.com will tell you!
Not only can you take out your credit card and buy currency for the games, you can also buy anything from high level characters and game items like clothing, swords, and shields. Some games like Second Life, are totally setup to be a virtual economy allowing you to buy virtual land, develop it, and resell it. Anshe Chung, dubbed "The Virtual Rockefeller", currently makes over $150,000 US buying virtual acres, developing these plots, and reselling them.
Most of the transactions are between players and happen in exchanges like eBay. Other sites have been setup to specifically for this function, ige.com, Game9th.com, etc.... In a typical transaction, one player sells and item to another and they arrange to meet up somewhere specific in the game and make the agreed upon trade. Sony has setup Station Exchange, it's own trading site for their Games, and saw $180,000 in transactions in the first 30 days.
Are your kids playing these games? Join them! You might just find a new virtual business between ogre battles!
It's a brave new world. Crank up those avatars and welcome to the next global economy, Economy 2.0!
Economy 2.0 | The New World You Will Never Step Foot In! |
Nov 17, 2006 at 01:59
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