Virtual Economics

The Washington Post has an excellent article on what I find to be a fascinating topic: the people in charge of massive, online, multi-player games are increasingly turning to economists to help them keep their virtual worlds running smoothly.  On first blush this may sound preposterous because there’s nothing “real” about virtual reality.  After some thought, however, it makes sense.  Even in make-believe worlds there are decisions to be made about scarce resources, people looking to mutually benefit through trade, and the old familiar laws of supply and demand.  Here are some of the more interesting nuggets:

Some virtual economies are larger than the economies of real countries.  (There are more players active in the game Eve Online than live in Iceland.)

Economists are needed to prevent virtual recessions and depressions.  They control the supply of online money (curb inflation) much the same way Ben Bernanke does with real money.

Online worlds are a libertarian paradise:

“There are few overarching rules. Labor markets quickly bounce back from recession because there’s no minimum wage. Players can voluntarily band together to create all sorts of innovative arrangements, including corporations, trade alliances and financial institutions.”

But that doesn’t always go over well:

“A lack of oversight has caused havoc in some games. In summer 2007, the game Second Life experienced a banking crisis not unlike the one that would grip the United States the following year. Thousands of players had entrusted money in virtual banks that had turned around and invested in lucrative land deals and casinos. When the deals soured all at once, panic ensued. Ordinary depositors found they couldn’t withdraw cash from ATMs, and one bank, Gingko Financial, lost its customers $750,000 in real-life money. The game designers had to step in and ban certain types of lending.”

The data coming from all the virtual transactions is pure gold for the economists, some of whom have given up lucrative careers in order be a part of what amounts to an enormous economics laboratory:

“Another thing that virtual worlds could, in theory, allow economists to do is run massive experiments. At the moment, when economists want to run financial experiments, they are typically limited to rounding up college students and putting them in a lab. While that has led to some discoveries — market participants, it turns out, don’t always act rationally — it also has real limits.”

But game designers and players don’t necessarily like economists using them as guinea pigs and arbitrarily altering their games.

And perhaps the most interesting idea, especially for parents who think their children are simply wasting time, is that some games are growing so large and complex that it’s not out of the question that someone could “play” professionally, thereby decreasing unemployment and contributing, albeit virtually, to their country’s economy.

HT: Greg Mankiw

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