Will Virtual Economies Affect Real-World Economics?

Thanks to Game Studies for their Edward Castronova-authored article discussing the economics of massively multiplayer games, which asks the question: "Will these economies grow in importance? Second, if they do grow, how will that affect real-world economies and governments?" It's suggested that "the mere fact that Earth economies may suffer as people spend more time in cyberspace does not imply that humanity is worse off", as "the basket of produced goods is simply changing." Finally, some of the unique economic facets to virtual worlds are pointed out: "Economics, on Earth, argues that no wise government will try to control prices. In an avatar economy, however, the government can effortlessly peg many prices at any value."

Re:"Wise" Being the key word

[KDan]

It does not even have anything to do with being wise, but with being capitalistic. The submitter is very narrow-minded. Purely capitalistic economics argues against price control. Purely communist economics argues for it. There's a wide range of possibilities between the two, and certainly not all have been proved unwise (and if they have been, then all governments are unwise because no government is 100% capitalistic).

Daniel

Re:"Wise" Being the key word

[Anonymous Coward]

FYI, the term you want is "free-market" or "laissez-faire". "Capitalist" is a commonly used shorthand for the same idea, but it's not correct, and if you're going to hit the issue that hard, you may as well use the correct terminology.

See-Saw -ing between the real and virtual.

[leoaugust]

A common theme throughout the paper is that the analysis of virtual economies will require slightly different tools and approaches than we are used to.

I think mostly existing tools were used beyond what they are generally designed for - i.e. expanded into a virtual world. The thing on which it is applied is different but the tools and approaches used are not.

Thus, our time in virtual worlds is more valuable if everyone we know is in the same world. Moreover, if two worlds compete and one has more players than another, wouldn't everyone have an incentive to join the larger world, so as to enjoy the larger network of society, communication and entertainment that it affords? Might such network externalities lead to a domination of this market by one player?

When I see two words "value" and "worlds" so close to each other the thought that jumps to my head is world of religion and its value. Do we have one religion ? Does the size matter when you can choose yours ? Does one religion dominate the world ?

Third, if there are rewards for solving puzzles, we can assume that a puzzle with higher rewards is preferred, holding challenge levels equal.

Don't know if there is such a correlation beween the two, because it is hard to pin down what "higher rewards" and "challenge levels" are. Firstly, how can you be sure that the coder has captured the "reward" or "challenge" value in a pattern of numbers ? And secondly, regarding preferences, it is well known that one man's cake is another man's poision. One way to visualize it is to see a see-saw in motion.

One of the major attractions of life mediated by avatars is the anonymity it affords, and anonymity requires a person to have exit options: other worlds to escape to if one's reputation in this one gets unpleasant.

I guess what it could mean is that if you find that you have committed a sin in your religion, it is then not a bad idea to shop around for another religion that doesn't consider it a sin - if the analogy made with religion is appropriate.

A player starts the game with a weak avatar, but gameplay gives the avatar ever-increasing powers. As power increases, the avatar is able to take more advantage of the game world, to travel farther, do more things, see more people. A person with a high-level avatar then faces a high hurdle in switching games, because in the new game he will start out poor, defenceless and alone again. This situation definitely locks in the game's player base, but it is also open to defeat by any number of schemes to reduce the switching costs. Surprisingly, no competitor to a current game has offered new players the opportunity to start their avatars at a higher level of wealth and ability if they can provide evidence of a high level avatar in another game.

Now it sounds quite like religion to me. I can just imagine the power structures you described and those described in religious history.

Given the expected growth in connectivity, interface technologies and content, there is reason to believe that this digital capital stock may eventually become quite large.

Well it depends on how you visualize the function of its growth. If it is linear or quadratic, then you probably could be right. If the function is of a higher order the growth of digital stock might find a limiting value, or even reverse itself. It usually happens when currencies of differnt nations are allowed to partially or freely float agains the currencies of other nations. And hopefully if that could be predicted, then it might be comparable to the accomplishments of George Soros - who broke the Bank of England.