by Joseph Weisenthal

Virtual Worlds Serve As Economic Laboratories

from the economic-test-tubes dept

One problem that economists face is the gnawing fact that humans often don't act rationally, potentially undermining many basic theories. It would be nice if economic theories could be tested in a lab setting. While there is a burgeoning field of behavioral economics, tests are costly and difficult to carry out. Professor Edward Castronova has made a career studying the economics of virtual words, MMORPGS like Ultima Online and Everquest. He has made some interesting insights by looking at how players react under various economic conditions. For example, in worlds with little scarcity, people are bored. When too many players want to be a wizard (or anything else), the profitability of that profession decreases. Neither of these insights differ from what you'd expect in the real world, though therein lies the allure. Theoretically, these worlds could act as labs to test economic models, like socialism, the third way, or a flat tax scheme. As the games get more advanced, perhaps they could be used to study more complex concepts like unionization, school vouchers, and single-payer healthcare. The experience of games designers could help test for the unintended consequences of regulations, something that would be a help in public policy. While economists like to call their field a science, some of their ideas are as absurd as the geo-centric model of the universe. Having more of them do labwork, like other scientists, could go a long way in making economics less dismal.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    ZOMG CENSORED, Mar 29th, 2006 @ 7:45pm

    Games != Reality

    The whole purpose of a game is to escap reality, not to partake in it. The more real a game gets the less allure it will have. If you make a game that has buraucracy in it, then the whole idea of "Having Fun" would be lost.

    Sure, there's some corellation between in-game realities and out-of-game realities, but pushing it further would definitely harm the games we love, IMHO.

    reply to this | link to this | view in thread ]

  2. identicon
    gh, Mar 29th, 2006 @ 8:11pm

    Re: Games != Reality

    The trick is doing it so that its still a game, but has parallels to reality. A lot of things can already be done that way, maybe single-payer healthcare would be a stretch but its possible an alternative parallel could be created that shows the same influences and pressures that it does in real life without making the games boring or stupid.

    reply to this | link to this | view in thread ]

  3. identicon
    CBau, Mar 29th, 2006 @ 8:11pm


    As a person who has played MMO's for a while, I concur with the observation that to a certain degree online games follow an economic model. Supply and Demand functions as it would in the real world because that makes sense... But to draw from that observation that we could possibly test economic theory is ridiculous.

    First, we pay for many of these MMO's and would not appreciate being "experimented" with at the sake of the experience. Second, if an economics think tank or worse, the government would come up with an MMO to test these models, it would be bloated, boring, and poorly supported.

    In conclusion, congratulations to Professor Castronova for noticing that Supply and Demand works even in a virtual world but let's not overstep our bounds of "reality" here.

    reply to this | link to this | view in thread ]

  4. identicon
    Josh Tomaino, Mar 29th, 2006 @ 8:14pm

    Re: Games != Reality

    Except you act like this type of buraucracy is not already there- you just aren't looking high enough on the virtual ladder. In fact, this ladder leads to a totalitarianism if you think about it. At the top, you have the developers, moderators, admins, whatever you want to call them. They make the decisions, and you adhere to what they say.

    This is no different from any real life totalitarian state, the fact that nothing has affected you in real life, is why it's separated from out-of-game realities, unless you run out of money trying to pay for server time.

    reply to this | link to this | view in thread ]

  5. identicon
    BaronofBanks, Mar 29th, 2006 @ 8:22pm

    One caveat

    I haven't read Castronova's work, but I would hope he would address possible biases present in the MMO-player universe vis-a-vis the general population.

    reply to this | link to this | view in thread ]

  6. identicon
    Brian, Mar 30th, 2006 @ 2:00am

    Games = Economics

    As a long time MMORPG player and an economist (among other things) who focused on econometrics (statistical/mathematical economic modeling) I noticed a long time ago that these games do form economic systems. True, they don't necessarily match economic systems in the real world but the rules of the systems in MMORPG's tend to be 'knowable' while that may not (usually aren't) in the real world.

    Anything that gives us a clue about behavioral economics is a start. For instance, the dynamics of guild formation/collapse is interesting in itself and not just to economists. A few anthropologists are even looking into it according to my mother (a Ph.D. in anthropology).

    As for the objection that a more accurate simulation of the 'real' world need be bloated, boring, etc. it need not be the case. People play the heck out of The Sims. don't they? Well it could act as a good baseline for a nice, large sample, micro-economic simulation, especially if you got a team of econometricians who are MMORPG players (addicts) involved in creation of the game. There are more than a few out there. Just my $.02.

    reply to this | link to this | view in thread ]

  7. identicon
    eeBz, Mar 30th, 2006 @ 2:39am

    Re: Games != Reality

    I only read the first guys comment, about how the whole purpose of a MMORPG is to excape reality. I think thats really only half of it. I've been playing Muds and various other MMO games since I was 10 (now 21) and i've learned alot of real world lesson's FROM them. Betrayl, Friendships, Basic people skills, hell even haggling, and basic market skills. I now run my own business, makeing 200k a year, using some of the same knowledge I learned from MMO's. So l say again, its only half, but it depends on the kind of person you are.

    reply to this | link to this | view in thread ]

  8. identicon
    ludo, Mar 30th, 2006 @ 2:53am

    Ultimate Online?

    Ultima Online == Ultima Online

    reply to this | link to this | view in thread ]

  9. identicon
    Vinnie, Mar 30th, 2006 @ 8:06am


    There is knowledge available in almost any human interaction. When those interactions take place in a universe with simplified rules it may provide a window into an individual's motivations. Look at almost any MMORPG with a good community, half of the discussion will be about how much things cost and how much they should cost. Sorting through that to find useful and accurate information just requires a little intuition, some luck, and a quick intellect. In fact looking at a world where money expenditures have less risk involved may provide a clearer picture as to why we spend money and how we value items.

    reply to this | link to this | view in thread ]

  10. identicon
    KK, Mar 31st, 2006 @ 9:34am

    Fabulous Book

    Edward Castranova's book is excellent and it addresses far more than the economic impact of online gaming, though this aspect alone is compelling reading. It also explores the relationships between synthetic and real worlds in the context of social, behavorial, and policy realms. In addition Castranova offers creative ideas for the future uses of synthetic worlds and predictions for their impact on our future.

    I HIGHLY recommend this book to anyone who's interested in business, economics, technology or even just the human condition.

    reply to this | link to this | view in thread ]

  11. identicon
    AG, Jun 23rd, 2007 @ 8:29pm

    Re: Ridiculous

    “Experimenting" on certain constraints in the virtual world would offer a great amount of insight into how the real world economy might respond to different situations. Such as a change in the tax system or imposing certain conditions on labour markets... the examples are endless, and I would say that it is "ridiculous" to only conclude that there is a relationship between demand and supply alone.

    What about climate change?? lets think about this for a moment... if we impose restrictions on carbon trading and seeing the effects of global warming on the world economy.. We can draw conclusion on what the implications are if we do nothing.. or if we act.. so we may see the differences in variables like GDP.. etc. Virtual worlds would offer the potential to observe constraints and allow economists identify solutions to various economic problems…

    reply to this | link to this | view in thread ]

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