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Virtual Economics: Applying Economics to the Study of Game Worlds

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Abstract

Complex computer games, especially massively multiplayer online games, contain narrative and mechanisms that mimic real economic activities, such as production, trade, and consumption. This has prompted some scholars to apply concepts and techniques from economics to study the complicated interactions inside games worlds. In this paper I review their work, attempt to argue why the approach has merit, and examine its limits and possibilities. In the final part I suggest a possible new avenue, using transaction cost economics to analyse and influence the size and composition of player guilds.

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... virtual economics (Castronova, 2002, Lehdonvirta, 2005), and for training of people in particular professional fields (i.e. military or fire fighting simulators (Atkin et al., 1999). ...
... 2) research on online gamers and online gaming communities (Lehdonvirta, 2005, Yee, 2007. ...
Article
Emergency response agencies that need to care for large crowds in real-life events, report a constant lack in human volunteers in large numbers for training purposes. Moreover, existing computerized training aides either totally omit affected crowds in their scenarios, or represent them as computer generated models. A potential solution that can provide real human input in large numbers for training purposes can be found in the form of Massive Multi-user Online Role-Playing computer Games (MMORPGs) that attract millions of users on a daily basis. In order to evaluate the use of MMORPGs as an emergency simulation platform I had to examine the in-game behaviour of participants, usability issues, data collection methods, and data reliability. I did so by constructing a multi-user computer game that included food shortage and a pandemic spread scenarios. Data collected included every possible item that could be technically logged, both qualitative (questionnaires, user’s self tagging of events) and quantitative (all in-game actions and their coordinates, players and virtual environment in-game status). The abundance of data enabled easy triangulation and verification. The main findings were: participants attention span was about 90 minutes, they demonstrated only a narrow range of behaviours necessary for their in-game survival, and this behaviour followed loosely real life behaviour patterns. Usability wise participants ignored interface components and in-game tasks that interfered with their game flow. Data reliability: unlike other methods that rely solely on participants accounts, the game had the ability to compare between actions to questionnaire answers, and was able to detect inconsistencies between people’s actions within the game and their accounts of their actions. The ability to create spatial maps of event types enabled a fast way to visually analyze data. The research concludes that MMORPGs can be used as an emergency simulation platform if: 1) its duration fits the participants’ attention span (as a result aspects of human behaviour that happen over a prolonged period of time will not be demonstrated); 2) the demographic composition of participants fits that of the population examined by the simulation; 3) participants should be properly reimbursed for their time; 4) it is known that participants’ in-game behaviour might be negatively influenced by lack of real-life experience of similar events; 5) in-game rules and mechanisms are set to filter out game abuse; 6) preliminary sessions are run to determine ideal attention span and data skewing factor.
... Changing the supply of housing or cars might actually take years. As a consequence, the observations on heterogeneous price development and price dispersion that hold for Diablo 3 also apply to these goods, as for example documented for real house prices in the U. S. between 1975and 2005(Nieuwerburgh and Weill 2010. ...
... This even led to the term mudflation, composed from inflation and MUD (multi user dungeon, i.e. the genre of the earliest multiplayer online roleplaying games). For a literature review see e.g.Lehdonvirta (2005). ...
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Designers of MMOs such as Diablo 3 face economic problems much like policy makers in the real world, e.g. inflation and distributional issues. Solving economic problems through regular updates (patches) became as important to those games as traditional gameplay issues. In this paper we provide an agent framework inspired by the economic features of Diablo 3 and analyze the effect of monetary policy in the game. Our model reproduces a number of features known from the Diablo 3 economy such as a heterogeneous price development, driven almost exclusively by goods of high quality, a highly unequal wealth distribution and strongly decreasing economic mobility. The basic framework presented in this paper is meant as a stepping stone to further research, where our evidence is used to deepen our understanding of the real-world counterparts of such problems. The advantage of our model is that it combines simplicity that is inherent to model economies with a similarly simple observable counterpart (namely the game environment where real agents interact). By matching the dynamics of the game economy we can thus easily verify that our behavioral assumptions are good approximations to reality.
... T. M. Ingenbleek et al., 2010). For MMORPGs, experts suggest that the pricing strategy for virtual in-game accessories largely depends on the value that the consumers perceive because the value of virtual in-game accessories tends to vary widely depending on each consumer's playing motivation (Lehdonvirta, 2005a(Lehdonvirta, , 2005bNojima, 2007), and MMORPG providers can also use the information to adjust their product offers, which also influences the customers' perceived relative advantage compared with the price (Hamari & Lehdonvirta, 2010;Lehdonvirta, 2009). Thus, value-informed pricing is the result of the deployment of informational resources such as market research, relationships, and internal knowledge of customers. ...
... The virtual marketplace refers to an emergent marketplace existing in an MMORPG world, where customers can purchase, exchange, or redeem in-game accessories using real-world or virtual world currency (Lehdonvirta, 2005a(Lehdonvirta, , 2005b. In comparison to other types of digital product (e.g., music) with that each individual can benefit from the purchase of one copy and may use it indefinitely (Varian, 2000), MMORPG providers have greater control over the expiration, distribution, and pricing of in-game accessories, which we refer to as manipulating value perception through shaping the virtual marketplace, and consists of the following activities. ...
Article
Value-informed pricing strategy, which focuses on determining the price level of products based on consumer value perception, is especially suitable to be applied in digital products rather than industrial ones. By carrying out 65 in-depth interviews with people involved in the Chinese Massively Multiplayer Online Role-Playing Game (MMORPG) industry, this article explores the process through which a value-informed pricing strategy is applied to determine the price level of virtual in-game accessories—exploring pricing preference through interacting with game players, swaying pricing alternatives through managing the competitive environment, and manipulating value perception through shaping the virtual marketplace. Furthermore, this article constructs a theoretical framework of value-informed pricing, including the above process, and deciphers the linkage mechanism between different segments. The findings not only enrich the theory of value-informed pricing under the application context of virtual digital products but also have implications for the practitioners in the MMORPG industry.
... An MMORPG is a virtual world with its self-contained social and economic system. The production and consumption behaviors occurring in a virtual economy resemble real-world economic behaviors (Castronova, 2001(Castronova, , 2008Castronova et al., 2009;Koster et al., 1999;Lehdonvirta, 2005). In this sense, the real-world economic concepts, theories, and metrics could be applied to examine a virtual economy. ...
... Real-money trading (RMT) and in-game currency Virtual economies in MMORPGs interact with real-life economies (Knowles and Castronova, 2016). RMT refers to the exchange of in-game assets, such as currencies, items, and avatars, with real-world money, which could generate an enormous amount of economic value in real terms (Lehdonvirta, 2005;Ondrejka, 2004;Huhh, 2008). RMT can be observed in most MMORPGs as a common type of economic behavior for players and a normal part of game play (Castronova, 2006). ...
Article
Purpose Massively multiplayer online role-playing games (MMORPGs) create quasi-real social systems in which players can interact with one another, and quasi-real economic systems where players can consume and trade in-game items with virtual currency. The in-game currency price, an important indicator of a virtual economy, is highly contingent on players’ behavioral interaction in MMORPGs. The purpose of this paper is to adopt a network perspective to examine how topological characteristics of social networks in an MMORPG, namely, network externalities, density, and closure, would exert impacts on the in-game currency price. Design/methodology/approach Players’ behavioral data were collected from a popular MMORPG in China on a weekly basis for 52 weeks. With a time series analytical approach, the empirical model for the price function of in-game currency was estimated with vector autoregression. Findings The results show that the number of core avatars and network density are positively associated with in-game currency price, while network closure has a negative effect on in-game currency price. However, in-game currency price is found to have no significant relationship with the trade volume of the currency. Originality/value This study fills in an important research gap by investigating factors influencing the in-game currency price of MMORPGs from a network perspective, which contributes to the existing literature of network effects and advances our understanding about how players’ interaction will influence the dynamics of a virtual economy. The findings could offer useful insights for online game companies to better understand their players’ social interaction and consumption behavior.
... Fiat money was also introduced as a means of reducing transaction costs in the virtual trade, for example, gold in WOW and the Linden Dollar in Second Life. Now, virtual assets include currency, personal property, real estate, accounts, and even securities (Lehdonvirta, 2005). Simpson (1999) documented the difficulties and failure of such closed economies by using the online game, Ultima Online as a case study. ...
Article
The success of online games such as “Second Life” and “World of Warcraft” shows the popularity of virtual worlds and reveals the economic systems embedded in them. A large number of players interact with each other in cyberspace, giving rise to an interesting phenomenon where players voluntarily create their own economies that involve trading virtual items or game money for real money. This real-for-virtual-money trading itself has become a several billion-dollar business. In this study, located in Korea, we analyze the economic impacts of the trading of virtual properties and the management strategies of the virtual economy (game) operators by using a two-period game theoretic model between the game players and game operators. In this model, players endogenously switch between seller and buyer roles. We find that real-money trading benefits game operators, and there exists an optimal amount in the supply of game items that maximizes their profits. We also find that the income disparity in the real world can be reduced when real-money trading is allowed. An empirical analysis with data from popular virtual worlds also confirms our findings that real-money trading benefits the game operators. Moreover, we find that playtime and the trading price of game items have a positive relationship. Our findings, from both the analytical and empirical analysis, strongly imply the importance of the embedded economic systems in virtual worlds.
... Companies arise as an alternative to the market so that they can arrange internal transactions conveniently, beat the market and offset the small loss of efficiency (Lehdonvirta 2006 After reviewing the differences between virtual economies and physical economies, the progress of online game pricing theory is examined. ...
... Virtual worlds are playing an important role in the study of diverse fields such as sociology [10], psychology [11], [12], economy [13], [14], etc. These studies raise the question of how the mechanisms of human behavior are being translated and developed in an artificial environment. ...
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Teamwork plays an important role in many areas of today's society, such as business activities. Thus, the question of how to form an effective team is of increasing interest. In this paper we use the team-oriented multiplayer online game Dota 2 to study cooperation within teams and the success of teams. Making use of game log data, we choose a statistical approach to identify factors that increase the chance of a team to win. The factors that we analyze are related to the roles that players can take within the game, the experiences of the players and friendship ties within a team. Our results show that such data can be used to infer social behavior patterns.
... Medical papers are often concerned with the addiction effects of online gaming (for an overview see Kuss and Griffiths (2011)). Economic research has been conducted by Castronova (2006b) and who consider the value of games as field experiments, Castronova (2006a) analysing the effects of real-money trades in online games, and Lehdonvirta (2005) examining how economic modelling can explain online game behaviour. For an overview of research on online worlds, see Messinger et al. (2009). ...
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We analyze a unique data set from a massively-multiplayer online video game economy called The Kingdom of Loathing to assess the viability of these markets in conducting economic research. The data consist of every transaction in a market with over one million players over three years of real time. We find that 1) the game markets are efficient, 2) the complexity of the product determines information diffusion times, and 3) we can classify which and how players participate in trade.
... If the focus was on the incomes of players, then these fees would be taken into account. 3 A student at the University of Helsinki (Lehdonvirta, 2005) has developed a series of macroeconomic indicators explicitly for use in virtual economies. Our approach differs in that we are not attempting to modify existing indicators and principles so that they fit virtual economies. ...
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This article proposes an empirical test of whether aggregate economic behavior maps from the real to the virtual. Transaction data from a large commercial virtual world — the first such data set provided to outside researchers — is used to calculate metrics for production, consumption and money supply based on real-world definitions. Movements in these metrics over time were examined for consistency with common theories of macroeconomic change. The results indicated that virtual economic behavior follows real-world patterns. Moreover, a natural experiment occurred, in that a new version of the virtual world with the same rules came online during the study. The new world's macroeconomic aggregates quickly grew to be nearly exact replicas of those of the existing worlds, suggesting that `Code is Law': macroeconomic outcomes in a virtual world may be explained largely by design structure.
... A significant contribution to the development of research on the economics of virtual worlds was conducted by Castronova (2001), Lehdonvirta (2005), and Heeks (2010), while the so-called virtual consumption in relation to the behavioral theory was undertaken by Lehdonvirta (2009) and Lehtiniemi (2007). In turn, other researchers in their studies presented brand value perceptions of consumers in virtual worlds (Barnes 2011;Barnes and Mattsson 2011), purchasing behavior and the effectiveness of a virtual environment as a new medium of advertising and the placement of real brands (Guo & Barnes 2012;Barnes & Pressey 2012). ...
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The omnipresent digitization of business and social networks has made the impact of virtual environment increasingly visible in many areas of life. Advanced technologies and ICT tools transform the ways in which teams communicate, acquire new knowledge and develop them. Civilization changes involve a need to seek new and more effective models of education using the potential of new media. The aim of the paper is an attempt to identify the tools and mechanisms, which allow for an increase of motivation of learners and the perception of knowledge to achieving the desired educational goals. Considerations in the area of the object of study have been focused on the concept of gamification and its implementation in the educational process. The article was developed based on a review of services and educational applications proving the effectiveness of using the mechanism of gamification in educational practice.
... Generally, it is found that MMORPGs involve complex forms of interaction and collaboration that often translate into improved social skills and activity in real life ( Axelsson & Regan, 2002;Duchenaut & Moore, 2005;Heckel, 2003;Oliver, 2002;Whang, 2003;Williams et al., 2006;Wing, 2007). Inversely, a few have observed that collective organization and trade in the virtual world closely mimic entrepreneurship, finance and economics in actual life ( Dodson, 2006;Lehdonvirta, 2007). From an emotional and motivational perspective, some authors have found that the social and cultural aspects of the MMORPGs are the main incentive to play, leading to positive feelings and strong bonding between players ( Chen, Duh, Puah, & Lam, 2006;Cole & Griffiths, 2007). ...
... Virtual worlds are playing an important role in the study of diverse fields such as sociology [16], psychology [36,8], economy [20,24], etc. These studies raise the question of how the mechanisms of human behavior are being translated and developed in an artificial environment. ...
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As an increasing number of human activities are moving to the Web, more and more teams are predominantly virtual. Therefore, formation and success of virtual teams is an important issue in a wide range of fields. In this paper we model social behavior patterns of team work using data from virtual communities. In particular, we use data about the Web community of the multiplayer online game Dota 2 to study cooperation within teams. By applying statistical analysis we investigate how and to which extent different factors of the team in the game, such as role distribution, experience, number of friends and national diversity, have an influence on the team's success. In order to complete the picture we also rank the factors according to their influence. The results of our study imply that cooperation within the team is better than competition.
... Mostly due to a lack of access to large-scale datasets, previous work on behavioral economics has been limited to building simulations. Lehdonvirta [8] argues that, while agent-based computational simulations have been widely used by economists, modeling human behaviour is a hard challenge and the validity of results from such studies remain limited. Consequently, there has been an increasing number of studies on the analysis of economic behavior using large datasets in online games. ...
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We use a 575,000-subject, 28-day experiment to investigate monetary policy in a virtual setting. The experiment tests the effect of virtual currency endowments on player retention and virtual currency demand. An increase in endowments of a virtual currency should lower the demand for the currency in the short run. However, in the long run, we would expect money demand to rise in response to inflation in the virtual world. We test for this behavior in a virtual field experiment in the football management game Top11. 575,000 players were selected at random and allocated to different “shards” or versions of the world. The shards differed only in terms of the initial money endowment offered to new players. Money demand was observed for 28 days as players used real money to purchase additional virtual currency. The results indicate that player money purchases were significantly higher in the shards where higher endowments were given. This suggests that a positive change in the money supply in a virtual context leads to inflation and increased money demand, and does so much more quickly than in real-world economies. Differences between virtual and real currency behavior will become more interesting as virtual currency becomes a bigger part of the real economy.
... Surveys of players have measured the extent to which the purchase of farmed gold occurs and how players perceive both producers and consumers of farmed gold [36], [35]. Other research has imputed the scale of the activity based upon proxy measures of price level stabilization and price similarity across agents [24], [25]. No fieldwork beyond journalistic interviews has been done in this domain because of a confluence of factors. ...
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Gold farming refers to the illicit practice of gathering and selling virtual goods in online games for real money. Although around one million gold farmers engage in gold farming related activities, to date a systematic study of identifying gold farmers has not been done. In this paper we use data from the massively-multiplayer online role-playing game (MMORPG) EverQuest II to identify gold farmers. We perform an exploratory logistic regression analysis to identify salient descriptive statistics followed by a machine learning binary classification problem to identify a set of features for classification purposes. Given the cost associated with investigating gold farmers, we also give criteria for evaluating gold farming detection techniques, and provide suggestions for future testing and evaluation techniques.
... Generally, it is found that MMORPGs involve complex forms of interaction and collaboration that often translate into improved social skills and activity in real life (Axelsson & Regan, 2002;Duchenaut & Moore, 2005;Heckel, 2003;Oliver, 2002;Whang, 2003;Williams et al., 2006;Wing, 2007). Inversely, a few have observed that collective organization and trade in the virtual world closely mimic entrepreneurship, finance and economics in actual life (Dodson, 2006;Lehdonvirta, 2007). From an emotional and motivational perspective, some authors have found that the social and cultural aspects of the MMORPGs are the main incentive to play, leading to positive feelings and strong bonding between players (Chen, Duh, Puah, & Lam, 2006;Cole & Griffiths, 2007). ...
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Souza, B. C., De Lima e Silva, L. X., & Roazzi, A. (2010). MMORPGS and cognitive performance: A study with 1280 Brazilian high school students. Computers in Human Behavior, 26, 1564–1573. 10.1016/j.chb.2010.06.001 https://goo.gl/TrF77Z The present paper attempts to empirically study the cognitive impacts of Massive Multiplayer Online Role-Playing Games (MMORPGs) in uncontrolled contexts in light of the Cognitive Mediation Networks Theory, a new model of human intelligence that aims to explain cognition as the result of brain activity combined with the information-processing done by external structures such as tools, social groups and culture. A sample of 1280 students Brazilian high school students answered a form inquiring about socio-demographic information plus the use of computer games, and also was submitted to a short knowledge exam and a mini psychometric test. The findings indicated that, due to their underlying structure and sociocultural nature, MMORPGs are associated to a greater level of insertion into the Digital Age, higher levels of logical-numerical performance, and better scholastic ability. Finally, suggestions are made for future studies on the subject.
... However, even in games where the act of selling virtual goods for 'real' monetary gain is actively discouraged and punishable by the developers, it is not uncommon for players to engage in such transactions. Research on these types of game economies and their ties to the physical-world economy (e.g., [50,74,83,116,123]) mainly focuses on MMORPG economies and the utility of in-game money and virtual goods compared to their physical counterparts. For example, Wang and Mainwaring [123] conducted an exploratory ethnographic study in China to understand the impact of virtual currencies in online games, and highlighted three major issues: realness, which correlates to how virtual currencies with ties to the physical world (which the authors define as "gateway currencies") are designed to feel like "fake money", to facilitate the act of spending money without the spender giving too much thought to it; trust, which relates to the difficulties players have carrying out cash transactions and sharing accounts with other players, both being practices very common in online games but not supported by developers, which lead to alternatives where players are prone to being scammed by other players; and fairness, which refers to the power that real money has in buying in-game advantages, which can break the balance of a virtual world. ...
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