Terra Nova

Violins: Magic Items in the Real World

I have been discussing violins with my neighbor, violinist Alex Kerr (who is both classy and world-class).

Once made, a violin matures over the course of hundreds of years. It comes to produce sounds of unparalleled high quality: voice, sweetness, juice, subtlety. When played by an expert, the best violins produce experiences that approach a kind of transcendence for the player. For an eloquent expression of this transcendence, read these remarks of Thomas J. Beczkiewicz, founder of the International Violin Competition of Indianapolis. While we on the outside can detect the quality of sound, we cannot explain it, and we certainly cannot trace it to anything observable or measurable about the instrument. The instrument is, somehow, special.

The best violins have a known history: Who made them, who played them, for how long, and how they were transferred from one owner to another. As each generation of great violinists ages, speculation goes on about which members of the upcoming generation will inherit the great instruments. Once a great violinist has his hand on one, he does not easily give it up, as the instrument he owns becomes a part of his reputation vis a vis other violinists.

Violins become named for previous owners, such as the Strad ex-Gingold. While many violins sound about the same to an untrained ear, experts can detect minor differences in quality along many dimensions. Some violins are considered to be best in every respect; even though the quality difference between 'great' and 'best' may not be big, especially in terms of impact on the general audience, the price differences are huge. Since 1850, the price of fine violins has appreciated at 3.5% per year in real terms, better than US Treasury bonds.Given the high prices for the best instruments, fine violinists often enter into loan-to-play arrangements with groups of well-heeled investors.

Let me now describe violins in the terms game players apply to special items. Violins are magic items...

China to ban RMT, maybe.

Thanks to Andy Schwarz for tipping us to this article in Information Week reporting on a Chinese government press release supposedly banning the sale of virtual stuff for real money. In the backchannel, Julian Dibbell reminded us that Korea did the same thing a couple of years back to no effect. No effect because it is hard to do without redesigning the virtual economy, and also because the law's intent was not actually to ban RMT. As we all know, some laws regulating a practice are not really intended to stop it - whatever the preamble might say - but to control it merely.

So: What is China up to?

A Taxpayer May Wonder

Two weeks ago, the U.S. Internal Revenue Service's "taxpayer advocate," Nancy Nina Olson, announced the release of her office's annual report to Congress, a yearly federal ritual whose long and impeccable streak of unnewsworthiness was broken this year by the inclusion of an item that actually made headlines. IRS May Push for Tax Compliance in Virtual Worlds, was the Washington Post's. IRS Official Recommends Policy on Virtual World Transactions, echoed the gamers at Kotaku, and IRS Report Recommends Self-Reporting Virtual World Income, added Second Life watcher Wagner James Au at New World Notes. The stories all correctly related the basic fact of the matter: In a detailed, 13-page passage, the report urged the IRS to "proactively address emerging issues... arising from virtual worlds." And if the stories all nonetheless failed, each in its own way, to relate the real news of the matter, that's understandable, because the news here is subtle: What this report delivers, in effect, is nothing more and nothing less than official recognition that the question of virtual-goods taxation is actually, like, a question.

On The Serio

[1/13/09 there's a tech glitch with typepad right now that seems to be messing with some of the fields, including comments. we are trying to figure it out.]

A few days ago I sent an message to my distribution list (full text below the fold) telling everyone that I'm starting to sort my Inbox using a currency called the Serio. The Serio is a virtual currency that can be attached to emails. Since it is a scarce resource, I know that a message with more Serios attached means more to the person who sent it. For that reason alone, I should pay more attention to that message.

That was my reasoning. Since I sent the note out, there has been quite a lot of negative reaction. That is not all that surprising if you know much about the history of public reaction to prices - people hate them. Making things more heated in this case is the frequency with which people think that virtual is the same as digital which is then thought to be costless.  As a result, the idea of applying a price in terms of a virtual good, to ration attention, a good that has always been thought to be free, has stoked some angry discussion. The anger in turn calls for a calm reflection on what prices are, why we have them, how virtuality changes prices, and how all of these things relate to human well-being.

Whither MMO economies?

CBBC, one of our longtime commentators, asked a question by email which seemed worth asking here:

My question -- and do forward it along -- is: What now for virtual economies? What happens to Eve now that Iceland's economy is collapsing?

Long ago, I asked in a Terra Nova link-mail, what influence (or lack of it) Eve had on the value of the ISK. That was when I thought Terra Nova was a hip economist hangout. Nobody wants to identify themself as an economist anymore, so I suppose you are all social scientists. Okay. What now? Will my WoW gold be worth more or less? Will games go under taking their  value with them? Will we see a run on games the same as a run on banks?

Rigorous Analysis of RMT

Courtesy of Richard Heeks of University of Manchester, everything currently known with any confidence about gold farming is reported here, without any apparent agenda.

Arden: Final Results

The results of the Arden project are available in a working paper here.  The working paper has also been submitted to a journal for peer review.

Summary: In a fantasy game setting, we made two equivalent worlds and set the price of potions to be higher in one than in the other. We found that people bought fewer potions when they were more expensive.

Discussion: The result suggests that people in fantasy games act in an economically normal way. Perhaps these game worlds can be used to study real economic behavior.

The results are based on an environment that was significantly more fun to play than the first one we made and represents the completion of the Arden project. My thanks go to the MacArthur Foundation for their early trust, their support through hard times, and of course the funding that made the study possible. I'd also like to thank the Bioware corporation for allowing us free use of Neverwinter Nights.

You can download the game environments we used for the study here.

Patenting Virtual Commerce

Last week I received the following email from an officer of the US Patent and Trademark Office (USPTO):

I am a Patent Examiner at the U.S. Patent & Trademark Office in the area of Business Methods, Finance.  I am the examiner of record of multiple patent applications  (20+) involving virtual worlds and different types of credit accounts, charge accounts,  escrow transactions, risk mitigation (to name a few) used within these worlds….I am looking for references from 2004 and earlier.   A published paper, game manual, or even a detailed blog entry that details the economic system / banking system / shopping / business creation in a MMORPG (especially Second Life) would be amazingly helpful.

As a relative newcomer to virtual worlds (I started writing on these matters in May of 2007), I promised I would pass on this challenge to Terra Novans.   But I can’t help also asking for opinions on a few aspects of the patents that raise some pretty interesting issues.  More background and gory details below the fold, if you dare. (There are a LOT of details).

Maxwell's Hammer

From time to time here on TN I've delved into methodological territory, and in my last effort, quite some time ago, I focused on the charges of "anecdotalism" that qualitative research in the social sciences sometimes faces, and argued that generalizable claims can be generated out of such methods. But, in retrospect, that piece did not confront the root of the problem directly, given the degree to which I do not there question generalizability itself as the core aim of scientific inquiry.[fn 1] As research on virtual worlds continues to increase, and as the different parts of the academy ramp up their efforts to fight for their funding (and perhaps thereby seek to discredit other approaches), it seems worthwhile (and consistent with the ecumenical spirit that largely characterizes TN) to consider how scientific the pursuit of other kinds of claims apart from the general are.[fn 2] And that's where James Clerk Maxwell comes in...

Arden Experimental Results: Preliminary Release

Some of you may have been following the Arden project (reported in Nature and the Chronicle of Higher Education). I'm pleased to announce that the project has come to fruition. With generous support from the MacArthur Foundation, we have created a fun game environment and used it to conduct a month-long experiment. Our experimental question (kept secret up to now) was: Are fantasy game players economically "normal"? Or on the contrary, when they make themselves into elves and dwarves and hobbits, do they stop taking economic decisions seriously? We created two virtual worlds, one an exact copy of the other, except that in the experimental world the price of a simple healing potion was twice as high as in the control. If people are taking prices seriously in this fantasy environment, they should buy fewer of the potions when potions are more expensive.