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The Almighty Buck Games

Learning About Real-World Economies Through Game Economies 178

Reuters has a report about research being done on the in-game economies of MMOs like EverQuest II and World of Warcraft to better understand much larger economic situations in the real world. The games are used as case studies where researchers can do controlled experiments that they couldn't necessarily attempt if real money or goods were involved. "After studying 314 million transactions within the fantasy world of Norrath in EverQuest II, including trading in-game goods like armor, shields, leather, herbs and food, the researchers were able to calculate the GDP of one of the game servers (the back-end computer that hosts thousands of players in one world). As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months. 'We have seen that kind of volatility during times of war and in developing nations in the real world,' said [Dmitri Williams, assistant professor at the USC Annenberg School for Communication]. 'Our own economy has turned out to be less stable than we'd all assumed.'"
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Learning About Real-World Economies Through Game Economies

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  • No, it can't work (Score:4, Informative)

    by line-bundle ( 235965 ) on Sunday October 04, 2009 @12:32PM (#29635847) Homepage Journal

    The problem with that idea is that the game economy is built with assumptions in mind. These assumptions will generally be based on theoretical economic models. So generally all you achieve with such experiments is confirm your built in beliefs. Chicken, egg anyone?

    A similar claim was made about SimCity when it was big, that it would teach about urban planning, but it had so many assumptions built in to be worse than useless.

  • Re:I for one... (Score:5, Informative)

    by Sapphon ( 214287 ) on Sunday October 04, 2009 @02:21PM (#29636763) Journal

    [T]he way fractional reserve banking in general and the Federal Reserve in particular is set up, there is always more debt built into the system than there are dollars in circulation. That's because debt is attached to money the moment it is created; i.e. for every X dollars in circulation there is always X+Y debt. This system is just not sustainable. How could it ever do anything but ultimately fail?

    Dear Parent, I presume you understand the fractional reserve system so you can skip down to paragraph 4 whilst I provide an Economics 101 refresher for the gallery (and this really is first-semester stuff; I taught it earlier this year):

    You and all your friends deposit money at the bank. The bank holds a fraction of the money in reserve (hence the name), at minimum the amount the law specifies, usually plus some amount X. We'll come back to this. The rest of the money it lends to people who want to borrow it; they pay interest, you get interest, the bank takes a cut, hooray.

    These borrowers spend the money, and the people who get it stick some of it back into the bank, where the cycle starts afresh. It depends on how much money the bank holds in reserve and how much the populace deposits but, yes, usually there is more debt around than originally produced currency.

    Now, you claim that this is a Bad Thing (TM). You don't state why. Presumably you are relying on the intuitive logic that having more debt than official assets can't be good. That intuition relies on the following crucial point: having more debts than assets is only a problem when people try and collect on their debts. Amazingly, this very rarely happens.

    You have the absolute right to go to the bank and demand your money, in bar. All of it. Buy who does that? Practically no-one. You ask for a portion of it; some here, some there, more at Christmastime and during the holidays. So long as the banks have enough money to give everyone what they want – and this is the amount X from above – holding the rest of it would just be inefficient, since none of the depositors want it and there are plenty of borrowers who can do productive things with it. Fact: if the banks decided to hold more money in reserve, the government/central bank would simply create more 'original' dollars until the effective level of money is back where it was.

    The fractional reserve system does have its problems. But the problems lie in deciding how high the reserves should be – too low, and when people do decide they want their money everything comes crashing down (e.g. AIG). Too high, and businesses can't borrow money and productive potential lies wasted (e.g. the current situation in much of Europe and the US). But the system is not inherently flawed. If the right level of reserves are held – and this is usually the case – the system provides a much more flexible and efficient supply of money than a representative currency.

  • by Sapphon ( 214287 ) on Sunday October 04, 2009 @02:30PM (#29636855) Journal
    "As real as real? Macroeconomic behavior in a large-scale virtual world" [] (links to the abstract with option to download)
  • Re:I for one... (Score:2, Informative)

    by mrlibertarian ( 1150979 ) on Sunday October 04, 2009 @03:55PM (#29637549)
    The X dollars in circulation just have to circulate fast enough.

    I think you're confusing cause and effect. For example, in hyperinflation, it's true that people will tend to spend their depreciating money very quickly. However, the currency is not losing value because people are spending their money quickly; the currency is losing value because the government is rapidly expanding the money supply.

    Why do you think we had deflation during most of the 19th century? Because people spent their money slower and slower? No, it was because the money supply was relatively stable, while the number of goods rose.

    ...building on bubble after bubble. But blaming it on FRB is just plain wrong.

    Did you ever notice that bubbles tend to grow when the fractional reserve banks are quickly expanding the money supply, and bubbles tend to pop when the rapid expansion finally slows or stops? There certainly seems to be a connection.

    What blows my mind is how liberals often act like the Great Depression somehow vindicated their case against the unregulated free market. The reality is that the Austrian economists were vindicated. They said, "Don't inflate the money supply." But, of course, that's what the Fed and the FRBs did during the 1920's, and a bubble grew. The Austrians said, "Do nothing. Let the economy fix itself." But, unlike in previous panics, Hoover did not listen. He intervened, and the economy grew worse. Then Roosevelt intervened even more, and things got so bad that we now call it the Great Depression. And then there was WW2, which further devastated the economy. Finally, when the government lifted the war-time price controls, prosperity returned.

    But now, Hoover is remembered as a non-interventionist, when he in fact intervened more than any president before him. Perhaps Bush will be remembered as a non-interventionist as well, because, just as Hoover did not intervene as much as Roosevelt, Bush did not intervene as much as Obama.

    Here we are in the 21st century, and we still haven't learned out lessons. Look at what the Fed has done to the monetary base [] since October. That's a ticking time bomb. Also, we were told that if we didn't pass the stimulus, unemployment would go all the way to 9%. Well, we passed the stimulus, and now unemployment is 9.8% and still climbing! We've increased the minimum wage (i.e. made low-paying jobs illegal), extended unemployment insurance (i.e. took money from employers and used it to pay people to stay unemployed) and now teenage unemployment is over 20%. Isn't fucking with the economy fun?

    Christ. Hopefully, when we start getting 1970's style stagflation, people will finally wake up and the pendulum will swing back towards the free market. But I'm not holding my breath.
  • Re:I for one... (Score:2, Informative)

    by Vaphell ( 1489021 ) on Sunday October 04, 2009 @04:11PM (#29637683)

    Except that bubbles are natural outcome of using money, bubbles will ALWAYS occur under the fed, gold standard or not.

    removing FED would work much better than what we have now. In 19th century the US economy was stable and after FED creation in 1913 we had several serious recessions.

    Bubbles happen because there is fast, steady influx of new players who want to profit quickly - you only have to put some cash on the table to enter the game and 2 years later you get guaranteed +50% in return. Where do players get their money to enter from? They take loans. If there was a limited money pool and no central planning, interest rate would instantly shoot through the roof thanks to free market forces (when people compete for money from banks, interest rate raises). In such scenario the forming bubble meets its pin of doom much quicker because people are discouraged when IR starts to match projected profits. When you keep the rate of 1% for years no matter what (like the FED did), don't be surprised that everybody and his dog enters the game - after all money is almost free and almost guaranteed to pay for itself... until the supply of suckers runs out and the whole Ponzi scheme collapses.

    What we had recently was a whole economic growth for a decade or even longer built upon bubbles of nasdaq, housing market and whatnot. GDP growth had nothing to do with productivity and other such worthless qualities, it was all hot air in the financial world playing with big virtual numbers. Such scenario would never happen with free market rules being the only ones defining the game.

    Whole situation with central banks micromanaging the economy is like meddling with the ecosystem. You may think you can somehow make it 'better', but you just can't do it right - unintended consequences of your actions will always bite you in the ass. The system will find it's equilibrium by itself

  • by Sj0 ( 472011 ) on Sunday October 04, 2009 @04:36PM (#29637857) Journal

    I think in the United States, it's illegal for anyone but congress to create legal tender.

    The purpose of creating a federal government was to standardize trade between the states, and the creation of a common form of currency was one of those standardizations. It's a power given to the congress directly by the constitution, rather than the later programs which are given by loopholes in section 8.

  • Re:I for one... (Score:3, Informative)

    by Nefarious Wheel ( 628136 ) on Sunday October 04, 2009 @05:01PM (#29638057) Journal

    You may not like "money" (however you define it) as a way of allocating resources, but it's the only one we have right now

    All tangential discussions of the value of money aside, I believe the studies will point out two things:

    (1) That it's quite possible to get a grant to play computer games (disclosure: level 80 characters here, plural, think it's a good idea ;P);

    (2) People may become aware that money exists primarily as numbers registered in one of a number of accounting systems, and nowhere else. If you think about it, most MMORPG's have a hierarchical system of banks and a means for transferring numbers (call it "gold pieces" or "plat" or "lindens", it's still decimal currency) from one account to another.

    (3) Most game EULA's specifically forbid trading in-game items for real-world (!) valuta, presumably to make it more attractive and to keep the tax people away;

    (4) ...???

  • Re:I for one... (Score:4, Informative)

    by Curunir_wolf ( 588405 ) on Sunday October 04, 2009 @06:15PM (#29638625) Homepage Journal

    He notes, for example, that changes in M2 are preceeding changes in M0 (which by itself invalidates Austrian theory, by the way).

    No, it doesn't. It just shows how the Fed manipulates the economy. Just because banks know that they can go to the Fed or the Treasury to get more debt or a bailout when they are in trouble doesn't mean that it's caused by rational decision-making, it just means that the banks understand the kind of system they are working under, which allowed private profits to be made, and that risk is mitigated by allowing huge debts to be socialized by the tax system.

    But not always the debt is unsustainable - if you have real growth, then growth in debt can be sustainable. That's the basic advantage of FRB with respect to gold standard - unlike gold standard, FRB can adapt money supply to finance real growth.

    And how do you determine what is "real growth"? We had lots of growth during the dot-com boom, financed by cheap debt. Yet, it couldn't be sustained. I wonder why? Keen (and Minsky) don't seem to be able to explain this. They continue to proposed the same policies that failed then, and are failing now.

    With gold standard, it pays off to hold on money during real growth, because money increase value, and it means nobody wants to invest.

    Actually, the opposite is true. You don't get "growth" by holding onto money, even if it's gold. Even on a gold standard some inflation occurs. The only way to increase your saving (or keep it from losing value to inflation over the long term) is to invest that money in some value-creating enterprise.

    But they are both inherently unstable, because the debts can grow even if there is no corresponding real growth.

    Exactly. Especially when, for instance, the Fed keeps interest rates artificially low, creates a housing bubble, and people borrow money against and artificially inflated home value. If the interest rates were allowed to go up in response to the reduced savings, the bubble would not grow so large and the adjustment would be short and easy to deal with, instead of creating a global crises like this one did.

  • Re:I for one... (Score:3, Informative)

    by Red Flayer ( 890720 ) on Monday October 05, 2009 @10:16AM (#29643887) Journal

    In 19th century the US economy was stable and after FED creation in 1913 we had several serious recessions.

    What? That is absolutely, preposterously false.

    The 19th century economy in the US was cyclical, just as today's economy is. But the recessions were much deeper than what we've had in the 20th and 21st centuries (though for the current recession, we'll need to see how bad it gets before passing judgment).

    You need to read some economic history, and stop reading (and believing!) what random people have been spouting on slashdot and other places.

    The recessions of the 19th century were actually much more severe than the recessions of the 20th century... the literature is quite clear on this.

    I'm not sure where you get your information from... but it's obviously not a valid source.

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