It’s not the economy, stupid!

Once upon a time, I thought virtual worlds were the holy grail of economics research – magical lands where ceteris paribus was king, and every hypothesis was a few regressions away from confirmation or rejection. For five years, I’ve grappled with my fellow economists to get them to open the lid with me, but to no avail. And finally, I’ve come to share their apathy. Much to my chagrin, I'm realizing that game economies are boring, inconsequential things populated by people I know nothing about. There are several reasons economists should stay away from them.

First of all, game economies just aren't that interesting. Don’t take that the wrong way. As a game player, I love the little markets that game creators have set up for us. I think its thrilling to buy low and sell high,and I religiously keep track of prices and quantities, too, but these data do not a research project make, nor a hypothesis inspire. In game economies, when prices rise, the amount we buy falls and the amount we sell increases, and when the money supply shifts, so do prices. Well, so what? After all, these changes in market behavior conform to economists’ basic expectations about the world. For better or worse, our curiosity is only piqued when the behavior of the subject apparently diverges from well-established principles, or when the underlying mechanisms are poorly understood. Just because something has a price doesn’t mean it’s worthy of study.

Another reason why economists don’t do more research in virtual worlds is the absence of data, especially demographic information about players. Game companies are usually unwilling to provide data to outside researchers. That’s great for privacy advocates, but it’s often a deal-killer for a social scientist. You can produce some data on your own, but it’s a costly process with no guarantee of fruitful results. Details about the player base are particularly hard to come by, although we have some reports from EQ II and WoW thanks to the Virtual World Observatory, PlayOn, and the Daedalus Project. Nevertheless, we almost never know that (for instance) Phae, the level 85 priest selling enchantments for 300g, is a white male student in Louisiana, age 30. One really needs this information before one can compare economic actors.

Moreover, a subtle and damning characteristic of virtual economic data is that it is highly censored: players are appearing and disappearing all the time and we have no idea why. The decision to participate in the economy is fundamentally linked to something truly unobservable about people and about the game itself. This severely limits the possibilities for economic analysis.

Finally, the most important source of economists’ video game aversion is that the analogy relating virtual to IRL economic behavior breaks down under closer scrutiny. The very notion that "scarcity is fun" is anathema to the standard assumption that having less is always worse than having more. If its true that gamers enjoy scarcity, then we must conclude that players are willing to pay for higher prices.That’s just not how real world economic actors work, and it presents insurmountable estimation problems to boot.

I wouldn’t say that there’s nothing worthy of my time and effort going on in these game economies. All signs point to some very intriguing in-game effects on behaviors like risk-taking and time discounting. But there is an enormous theoretical and empirical gap separating economists from a solid analysis of that behavior, and there will always be that one nagging question: "So what?" To make my name and bring others in, I need something more provocative and accessible.

To that end, I think the real economic meat in virtual worlds is to be found in competitive gaming. Focusing on the hardest core of hardcore gamers alleviates most or all of the problems I listed. First, team competition with real-life consequences can be found all over the gaming world, and when international prestige, money, and corporate sponsorship are on the line, one need not worry about the marginal utility of, say, another unit of ISK. When wins are the goal, progress is measurable and scarcity is not fun.

Second, demographic data is less of an issue when we study competition, and there are all kinds of stats provided by and for the fans, players, and game companies. We can measure how much time people play, and where they spend their time in the game. We can find out what they’re wearing, and measure their gear’s capacity for ability enhancement. With minimal cooperation from players, we can often estimate how well they are causing, mitigating, or healing damage. There is a host of information on relative and absolute success, like arena ratings and boss wipe/kill statistics. In the context of team competition, demographics are more like icing than cake – they’re nice to have, but not necessary to produce interesting results. The censoring problem is also mitigated because the appearance and disappearance of teams has a fundamentally different cause than the appearance and disappearance of individual players.

Finally, team competition is economically interesting. Economists like to study how individuals and organizations combine capital, labor, and technical know-how to produce a good. This is exactly what competitive gaming teams do. Players form, dissolve, and modify their teams all the time, and these activities are compelling analogues to labor, product, and R&D markets. By way of these changes there are opportunities for shirking, one-upsmanship, information leakage, corporate espionage, hostile takeovers, mergers, tacit collusion, and on and on. These are all topics that whet the economist’s appetite for research, because the mechanisms are complex and the results have numerous real-world applications.

So, to state my point succinctly, researching a game’s economy is a fool’s errand. The economic interactions mediated by prices are fun to play with, but they’re nothing new. Getting economists into virtual worlds requires a fundamental shift in focus from virtual markets that were written into the game to the real markets that players create to solve problems. We need to start looking at aspects of the game where outcomes have real consequences for players, and teams are an excellent place to start.

It’s not the economy, stupid! by Isaac Knowles, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

2 Responses to “It’s not the economy, stupid!”

  1. David says:

    Interesting post, but isn't it self-contradictory? First you say game economies are boring because they operate on well-understood principles. Then you say that they imply people should be willing to pay for higher prices, which contradicts those same well-understood principles. Which is it?

    • @David: It's not that "scarcity is fun" is dull or well-understood; its actually rather intriguing. But - if true - it precludes the possibility of mapping market behaviors to the real world and creates serious estimation problems. I don't think that is in contradiction with my first point (though you could probably interrogate it to death): that a description of price and quantity movements is prosaic, at best. Most research on game economies to this point has been just that.
      That doesn't mean what individual players are doing is not worthy of study. As I mentioned, it looks to me as if players' tolerance of risk, level of patience, etc., changes when they are in the game. Clearly those behaviors have an effect on demand and supply. Isolating and studying each of those behaviors, however, requires demographic information and a better understanding of "scarcity is fun". We have neither.

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