Online Role Playing Games: Virtual Economies

May 8, 2004 4:41 AM by Tim Swanson | Other posts by Tim Swanson | Comments (3) | TrackBacks (1)

Having grown up with a Nintendo in one hand and a keyboard in the other, members of my demographic group - photogenically geeky, logically refined and otherwise en vogue - have blazed a venturous economic path in fulfillment of Hayek's "spontaneous order."

In the beginning was the ducat and the ducat was with eBay and the ducat was eBay

Over six years ago a computer game by the name of Ultima Online ushered in a genre with the long-winded trade name of Massively Multiplayer Online Role Playing Game, or MMORPG. Several generations of these games have since been developed and released for mass consumption, with EverQuest and Lineage being the notable poster-boys often mentioned by media outlets, classroom debates and the last words in wanton relationships.

Just fifty years ago few individuals may have foreseen the maturation of what were niche markets at the time, such as newfangled contraptions like integrated circuits, vacuum tubes and moving pictures, not even Drexler or Clarke could have predicted what mode of trade millions of individuals would eventually interface with on a daily basis: a flickering monitor filled with colorful avatars representing individuals from every walk of life, from every corner of the world and from every dimly lit fast-food filled coke-strewn bedroom.

Now for all of those still living in a non-hip-hop time, an MMORPG is roughly thus: you get to play Gandalf from the movie Lord of the Rings. Well, not the exact character, but you control a digital representation of a customizable entity (depending on the specific genre of the game it can be anywhere from a stealthy Dark Elf to an armor-laden soldier from the Terran Republic, here to free Eyerakees?). Anyways, the gist of it is you sit down at a computer terminal, design a character and then send them off to complete quests, battle opposing factions and otherwise partake in oodles of tomfoolery.

For numerous reasons these games sell like crack in Orange County and have hundreds of thousands of active players at all times of the day -- which brings me to one point I would like to briefly mention: the social organization within each game is quite fascinating as individuals will assemble into tribes and clans, where in fact the membership of numerous clans often includes individuals from the opposite side of the world, so that at any given time of the day, members of the same team can work on a series of tasks such as defending strongholds or laying siege to a kingdom belonging to Some Really Bad Dude.

Anyhow, the inevitable division of labor and specialization takes place within each game with various races and classes (some of which specialize in craft making, silver-smithing, etc.) being predetermined by the developers and are continuously tweaked and modified throughout the duration of the games existence. Additionally and most importantly, material exchanges take place - some in the form of simple barter (a couple of coconuts for your horse please) while others may be in the form of some sort of monetary bling bling.

Metrics schmetrics

While neither the Federal Reserve nor the Bank for International Settlements mandates economic policies in the various games, there are numerous ways inflation, deflation, stagflation and bananaflation surface. For instance, enterprising players may discover that if they jump over a log at a certain time of the day after slaying a beetle, the next zombie they kill will drop double or triple the normal loot because of a bug. Another person may discover that they can interface the video game with a program they wrote specifically to "dupe" or reproduce an item in the game. The list goes on as there are a number of ways to artificially introduce such contraband -- as the saying goes, if there is a will, there is a way.

Conversely, developers may delete, devalue or otherwise deflate the utility of a particular item thus bringing on grassroots campaigns to topple the tyrannical game moderators - damn them.

This brings us to point Omega, the spot where Austrian-minded libertarian types will find alluring, web log Terranova, which is dedicated to discussing the economies of virtual worlds.

A few notable stories from them and others regarding this topic:

- Piracy and Blackmail - One guild captured the space ship of another guild and is demanding a payment or else, they will sell it on eBay to the highest bidder. Poster Nathan Combs comments:

On the one hand, ransoms are part of the culture and the sub-game of "dancing with pirates" that has evolved. On the other hand, if blackmail is obtaining or procuring something by illegal means, such as by force or coercion, where might the lines be in Virtual Worlds: are they near or far? While to a lay person its hard to imagine a game being "coercive" per se, is that always true for all in-game (emphasis on in-game) actions? And does one have to sell it on eBay before it counts?

- Star Wars Galaxies (SWG) Economic Data - Poster Edward Castronova, associate professor of Economics at Cal State Fullerton (he's the same Castronova that penned this GNP comparison study), reflects on internal economic data used by game administrators to monitor the economic vitality of the game. His prognosis:

So rather than say that something is wrong from an economic policy point of view - I don't know that, hell, an army of Stanford Nobel laureates can't know that, not yet - all I can say is that something in these numbers makes me uncomfortable. Putting on a game designer hat, I'd still be concerned about whether my economy was serving the purposes I had hoped for it in the game. But that's not news. I think most devs already understand how hard virtual economies are. I think they're happy so long as the economy doesn't break something else.

- Team Catallarchy has had a number of stories regarding MMORPGs, with Andy Duncan theorizing on a possible HoppeWorld (though he failed to use any Deutch including uber):

In this superlative gaming experience, the start-up Human Tycoon would own the central segment of a large bare micro-world. He would be surrounded by other city-providing landowners with similar land-plots and freshwater opportunities, sea access and coal deposits, and the same gold reserve starting capital. There would be nine competing micro-states in all, with a human player controlling the tycoon in the centre of the grid. The idea would be that with your own piece of land you would have to create more wealth than the other surrounding micro-states, to provide the human actors, or Hums, with a maximally attractive city and associated services. You could do this pretty much in any way you liked, even taking over the property and services of other surrounding computer-controlled micro-states, where you could swing deals with the rival computer-driven tycoons to sell them bits of your own property and developed services, to your judged advantage, or buy their land and developed services, to your judged advantage.

- Virtual Cash Breeds Real Greed, a Wired News article discussing an innovative approach to solving what amounts to expensive and time consuming transaction costs dubbed, Gaming Open Market:

The Gaming Open Market, or GOM, is a recently launched website that serves as a currency exchange of sorts. But it's not enabling the buying and selling of different countries' money. Instead, it lets players of a group of online games -- including Ultima Online, Star Wars Galaxies, Second Life, The Sims Online, There and others -- traffic in the currencies of those virtual worlds, trading game money for U.S. dollars or, soon, even allowing players to trade across games.

- But Will IRS Accept Virtual Cash? Set in the Gregorian Year 2004, our hero must decide how to properly dispose of accumulating too much wealth. Julian Dibbell makes a living off of buying, selling and trading virtual goods and services in online games such as Ultima Online:

Dibbell is a trafficker -- in the gold pieces, suits of armor, blades and other artifacts beloved by the often obsessive players of Ultima Online, many of whom wouldn't blink at paying $600 for magic gloves. But Dibbell's going to have to sell a whole lot of them if he's going to meet his goal, as Tax Day is just around the corner.

- Lastly, PlayerAuctions.com will allow you to indulge to your hearts delight of buying low and selling high (and the delight of your significant other who just loves these types of games?).

Note: neither the Mises Institute nor the Author is responsible for Post-Blog-Reading behavior. MMORPG at your own risk. These statements have not been evaluated by the Food and Drug Administration. This post is not intended to diagnose, treat, cure or prevent any disease.