How much would you pay for a virtual spaceship? Ten dollars? One hundred dollars? One thousand dollars?
Try $10,000. Yes, for a virtual spaceship.
With online gaming on the rise, what can we expect to see from games like World of Warcraft, Eve, and Second Life? Well there are big spenders, like the hot shots that own Titans in the massive interstellar reality Eve, which go for $10,000. Then there are people who have quit their day jobs to pursue a full-time career in acquiring and selling virtual items. What you have is a free market consisting of potions, laser guns, and monsters, in terms of a currency that can be converted to dollars, that is having a real life impact.
When different virtual economies link currency, the effects are not unlike when multiple countries link currencies. It is in this way that the combination of the virtual gaming company Valve and their Steam platforms’ currencies is not so different from the European Union when it comes to economic issues like arbitrage. You can read all about it at Yanis Varoufakis’s blog here.
The need for online game developers to hire an in-house economist is growing all the time, to protect players from inflation, economic crisis, and monitor the market that results from game play.
Virtual realities are an economist’s ideal research tool. Imagine a market where every transaction, including the price, goods and time, is recorded. The potential for testing both widely accepted and developing economic theories is so fruitful, it’s hard to pass up.
The legitimacy of these virtual economies as an accurate representation of a market economy is debatable. How can we expect people to treat virtual currencies that only exist to buy virtual weapons like real money? The idea is that while a currency can at least be converted to a tangible and credible currency, it has real value. Some of these virtual worlds are even larger than countries, so while they might be used to buy virtual objects, these online currencies are not so different than foreign currencies.
So if these virtual realities are not so different, than maybe we can learn from them. Just think, what if we could simulate the Great Depression in a virtual world over and over, until we understand it well enough to be sure that it never happens again?
Game developers recognize that economists might be interested in using their virtual worlds as an academic tool and may be hesitant to let an economist be involved. The scholars might just suck all the fun out of their profitable games. But, as virtual reality developers recognize the need for an in-house economist, we can expect to see more research on these kinds of issues.
The negative externalities
Like in any economy, there is corruption in the virtual world too. In the video below, Kyle Chayka is interviewed about the virtual economies sweatshop equivalent called “gold farms”, where individuals are forced to play online games so that others can collect the benefits. At what point should lawmakers step in and regulate virtual economies, if not to protect their citizen’s private assets but individual human rights?
In other instances, gamers have collectively lost hundreds of thousands of dollars in virtual economic crises. During the Great Recession in 2008, Second Life made a lot of noise when they experienced a run on their virtual banks, which is estimated to have cost Second Life players $750,000 in actual money.
The Rise of Video Game Economies
This is a PBS video full of video game footage and techno, as well of fun stuff like economic interviews. If you’ve got the time, it’s worth the watch.