Archive for the ‘virtual economies’ Category

Virutal economics revisited

May 31, 2010

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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Culmination of my World of Warcraft Research

June 5, 2007

This is the last draft of my paper on RMT.  It was last edited in late February, and unless there is some great interest from the outside it will remain in its current form.  I post the link here for all to view and comment at their leisure.

World of Warcraft: Further Research

June 1, 2007

Unfortunately, my WoW research is on hold indefinitely until I get up the gumption to do it again.  In the meantime, I’ve been thinking of ways to go about looking at the real money trade (RMT) and prices that would yield excellent examples of real life economic phenomena. 

For instance:  Suppose it were possible to differentiate between gold acquired through intended mechanisms and gold acquired via RMT.  In other words, suppose there were a way to “tag” RMT.  This would make it possible to examine the flow of RMT as opposed to regular gold.  Does RMT acquisitioned gold circulate in the same general pattern as does normal money? 

 Why?  Because we could use such information to look at the effects of fluctuating currency markets have on an economy.  The exchange rate with dollars is so small that the effect on the American economy is negligible.  But as my previous research has shown, RMT can have a profound effect on the price level in the virtual economy of World of Warcraft.  Embedded within fluctuations of the price level we may find evidence of any number of economic phenomena taking place.  For instance, we may see RMT gold as foreign direct investment, and to the extent that RMT causes short run increases in economic activity (as when the federal reserve increases the money supply), we may see the virtual economy produce more as well until prices adjust. 

 There are two ways to go about getting data from and about the game.  The first is through user-interface add-ons like Norganna’s Auctioneer, which can collect information from the auction house.  I have a great deal of data from the April 2006 to October 2006 and could reexamine for certain fluctuations.  However, it would be extremely difficult to control for the account eliminations Blizzard was enacting at the time.  So better off perhaps getting someone to modify the code to collect data and index it by date and time. 

 The other possibility which I was considering for this summer but which did not pan out was an actual in-depth panel study utilizing interviews with individual players.  I think this should be explored by researchers with more time and resources than are currently at my disposal. 

World of Warcraft: The New Economy

May 9, 2007

Although my reserach agenda for WoW appears halted (and likely just stone dead), I don’t think that necessarily precludes from writing about virtual economies. 

So in that vein I think I want to bring up a new design aspect of the WoW expansion (The Burning Crusade) about which, I must say, I am somewhat unhappy.  This concerns the way that the professions have been changed such that you are unable to buy and sell the fruits of your labors in the economy. 

For instance, blacksmiths were long separated between weaponsmiths and armorsmiths.  In the original version, even specialized smiths could buy and sell their goods and services as they saw fit.  With the expansion came a new (and seemingly unreasonable restriction) on that aspect of the smithing trade – and now armor and weaponsmith products can only be used by armor and weaponsmiths, respectively.  From what I understand, this has happenend also in tailoring, and though I’m not sure, probably in leatherworking as well.  I don’t know about jewelcrafting, though I do understand that there are certain products of the trade that can not be shared with others.

So why do it?  I’ll just focus my analysis on smithing, but I think with some modification it could be applied to the others.  The main problem may be that Blizzard simply made the products of the trade so powerful – far more powerful level-for-level than anything you can pick up in any non-heroic 5-man instance – that if, say, a warrior weaponsmith and a warrior armorsmith were to be able to produce and trade, they would have much less incentive to hit instances more than once or twice just to finish quests.  Still, this seems rather myopic.  Armorsmiths can’t make shields, and at a higher level the only thing they can really make is some crazy chest-pieces.  Wep-smiths can only make, well, weapons, so you couldn’t argue that the two could trade at higher levels thus significantly reducing the number of warriors that would be willing to be MT or OT in an instance.  In any event, by making the pieces more powerful than what you can pick up in an instance, they actually give you an incentive to bother collecting the materials for the recipe.  I mean, I spent a week getting together what I needed for the first epic chestpiece that I made.  I recall that before the expansion the prospect of collecting what you needed for armormithing was so daunting, and the rewards for your effort so small, that i never really bothered making anything.  I would just go in the instances and hope for good luck. 

Actually I really can’t think of one good reason why they would do it.  It doesn’t diversify the products in the economy; in fact, it takes upper level crafters out of the economy.  It doesn’t contribute to the social aspect of the game for the same reason: it takes people out of the economy.  I can only conceive that Blizzard reasoned that people weren’t crafting because they had no incentive to do so, so the specialized smithing professions were not contributing anything more to the economic/social aspect of the game. So, they thought, we can decrease the material requirements and/or make the crafted pieces more powerful than what can be acquired through regular instance runs.  But, if we do that, people might stop playing the instances, so we should require that only the professionals themselves can utilize their product.  So while weaponsmiths and armorsmiths might be crafting and using their own weapons and armor, they certainly participating any more in the social or economic aspect of the game as a results. 

Face facts, however:  While the pieces are better than what the professions used to be able to make, the materials are still expensive and collection is time-consuming.  I can’t imagine that loosening usage restrictions would actually hurt game play, especially when you consider the economic advantages that would attend such deregulation.  I know I would be smithing more often if I could actually really offer something to customers.

World of Warcraft and RMT

April 16, 2007

I have been researching the Real Money Trade with respect to the MMO World of Warcraft for about 8 months now.  I will try to post the current draft of the resulting paper in the near future.  Today, I read this entry at PlayNoEvil about a recent problem of hacking in World of Warcraft accounts.  Further down is a summary of an article (the text of which, I admit, I have not read), by a Prof. Castronova, an economist who has written much of the seminal work in the field of RMT, including the description of  simple demand model for RMT. 

Personally, I am somewhat turned off by Castronova’s incessant diatribes against RMT, especially as a (fledgling, a.k.a undergrad) economist.  Simply renouncing RMT does not provide any new information that game companies may use to combat it, and invoking government intervention is a cardinal sin of economics of the first degree.  I think economists and game companies interested in RMT need to research the incentives that gamers face with respect to RMT, and use the resultant models to devise solutions that are both effective and cheap to implement.  Supposing that we see RMT as a the result of a failure of a game to fully enclose players in its Magic Circle, then the demand for RMT might ultimately be chalked up to game design flaws, not the incursion of cheating, criminal elements.  The impetus is then on the game company to improve/innovate in their games, instead of on the government to devise and impose more laws and create more waste. 

I’ll write about this again if I can get a chance to read the text of the actual article.

Introduction – Hopes for the Future

April 2, 2007

Notwithstanding the research blog that was required for my economic analysis class last semester, my experience with blogs begins with my livejournal.  However, this past weekend I had the opportunity to attend the Student Academy and I think my experience confirmed what I’ve been thinking I should do for a while now:  Start committing my more constructive mental and academic events and activities to a publicly accessible blog. 

 That said, there are essentially four broad topics which I will broach in this blog, but if it becomes necessary I will go ahead and run separate blogs in order to maintain some coherence.  These topics are:

1) My ongoing research concerning virtual economies, especially as regards world of warcraft.

This summer I hope to be able to gather the data necessary to test my hypotheses concerning the interactionss between real and virtual economies, especially in MMOs.  I’m not as interested in situations where the interaction is intentionally designed into the game, such as is the case with Project Entropia or Second Life.  My interest is more in the destructive interactions between games like WoW, EQ, EQII, and others with the real life economy.  More on this as it develops, but you can read about the early stages of my research in the blog linked above.

2. Also starting this summer, I hope to begin work on my honor’s thesis in economics with my good friend Becca under the supervision of a few of my professors, primarily Prof. Shawn Humphrey.  Becca is actually an anthropology major, among other things, and we hope to be able to do some interdisciplinary work in combining two fields of social science that often find themselves at odds with one another.  The exact topic is yet to be identified, so again there isn’t much to say about this right now.  More as it develops.

3.  Critique of Economics

As much as I love what I do, and as good as I’d like to think I am at doing it, I am often unsatisfied with certain aspects of traditional economics.  Neither, however, do I necessarily consider myself a member of one particular school of economic thought rather than another.  For lack of a better label, I’ll just call myself a critical economist. 

I think that economists wield a great deal of political power, and we often assume that this is the case because we’re just so damned good at predicting and analyzing human behavior.  While I think that is true, I also think that the assumptions we tend to make about humans in order to analyze them is both advantageous to those who wield political power and, in some cases, unsubstantiated.  You will not find me arguing  here that people are not rational; rather, I am interested in the assumptions we like to make about such socially constructed concepts as the self, conflict, government, economic systems, etc. that act to structure incentives and which are often assumed away or completely unacknowledged.

I’m interested in practicing an economics that analyzes human behavior – not one that forces undue assumptions about behavior onto humans.  This is the critical economics I will be writing about here.

4.  Philosophical meanderings

Along with being an economics major, I take at least one philosophy course every semester, and I’ve been doing this in such a way as to follow the chronological order of western philosophical thought.  I started with Thales and now I’m on Nietzsche.  Next semester is existentialism.  I enjoy the places philosophy takes me, and where I think what I have to say is intersting, I’ll be putting it up here. 

 So this is the big plan; if this blog can live up to just one of these purposes, that’d be great.