Virutal economics revisited

I started this blog a long time ago, in part to serve as a forum to discuss my research in World of Warcraft. In my first serious undergrad research paper, I explored the effect of the mass account purges that constituted Blizzard’s first major foray into defending its economy against RMT. I found that price levels on the auction house dropped precipitously in response to these bans; that is, the economies experienced mass deflation.

With notable exceptions, research into virtual economies has similarly focused on macro-phenomena, and this seems to have followed from the belief that such research serves to position VWs as media for policy research. The macro focus seemed to be a consequence of the fact that it was difficult to get microlevel data, but this problem has diminished: Dimitri Williams, who was given amazing access to data from Everquest 2 data by Sony Online Entertainment, worked with Edward Castronova to produce a paper on the stylized facts of the EQ2 economy. Yet while this has served as yet another interesting think-piece in the limited bibliography of virtual economics studies, it has gone basically unnoticed in the field of economics. In fact, the best papers I have read so far on the economics of virtual worlds have been produced by undergrads (here and here). An honorable mention must go to a high school student who is now an undergrad at MIT, and whose ambitious paper, though flawed, evidences a remarkable amount of careful thought for a high school senior.

What makes these papers valuable is that their authors are not trying to shift paradigms, but rather to explain in precise detail how virtual economies actually function, and the ways in which player participate in the markets they create.

In fact, the most important paper on economics produced by the Gods of Game Research is not an economics paper at all, but rather an exposition of Dimitri Williams’s mapping principal, in which the author lays out the pitfalls that one faces when entering virtual worlds to perform research. Williams thesis is that researchers must carefully establish the way in which activities in virtual worlds map to those in real life before drawing inferences. From an economics perspective, this mapping has yet to be carried out in any systematic way. One of the issues an economists face, for instance, is establishing the way in which a player’s participation in markets for virtual goods maps figures into their production of ‘fun’ – that is, their utility function. Absent such information, any study that seeks to study macro-phenomena can not establish a map to the real-world economy, where participation in markets is fundamental for existence.

What appears to be missing in the game studies arena is a set of individuals with sufficient amounts of micro-level market data and the will to analyze it. With little to no help forthcoming to the average researcher from the companies themselves, the researcher is forced to produce the data on his own – a very costly venture in time and money.

As I once again seek to jumpstart this blog and define its direction, I will post further on interesting research questions and on methodologies that will allow research economists to enter the field at a relatively low cost. I look forward to producing a blog that is useful as a research diary and forum of ideas for other interested individuals.


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