It took me a while to understand what Hal Varian would do as a chief econ at Google. Now it seems vide-game industry is looking at econs as well.
A super article by Brad Plumer on employing econs and applying economics in videogame industry(HT: Browser.com). Yanis Varoufakis a Greek econ recently joined Valve, an online gaming company as choef econ. It stirred some interest amodst econs. So this article explains why the industry needs econs:
Inflation can be a headache for any central banker. But it takes a certain type of economist to know what to do when a belligerent spaceship fleet attacks an interstellar trading post, causing mineral prices to surge across the galaxy.
Eyjólfur Guðmundsson is just that economist. Working for the Icelandic company CCP Games, he oversees the virtual economy of the massively multiplayer video game Eve Online. Within this world, players build their own spaceships and traverse a galaxy of 7,500 star systems. They buy and sell raw materials, creating their own fluctuating markets. They speculate on commodities. They form trade coalitions and banks.
It’s a sprawling economy, with more than 400,000 players participating in its virtual market — more people, in fact, than live in Iceland. Inflation, deflation and even recessions can occur. Which is why, from his office in Reyjkjavik, Guðmundsson leads a team of eight analysts poring over reams of data to make sure everything in Eve Online is running smoothly. His job bears more than a passing resemblance to that of Ben Bernanke, who oversees the U.S. economy from the Federal Reserve.
“For all intents and purposes, this is an economy that has activity equal to a small country in real life,” Guðmundsson says. “There’s nothing ‘virtual’ about this world.”
There is debate around whether economics can be applied into virtual world or whether econs can learn from the virtual world via experiments etc. First on how economists can learn from the virtual place:
In June, Varoufakis announced on his blog that he had been hired as an in-house economist by Valve, the maker of the popular Half-Life games. Varoufakis wasn’t an obscure number-cruncher. From his perch at the University of Athens, he had become famous for his trenchant analyses of Greece’s debt woes and the euro crisis. It was clear why Valve was interested. The company oversees a network of games such as Team Fortress 2 that run on its online gaming platform, called Steam.
Valve wanted to link different Steam games together so players could trade virtual items. As Gabe Newell, the chief executive of Valve, explained in an e-mail to Varoufakis: “We are discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments.” Whom better to ask, Newell figured, than an expert on the difficulties that Germany and Greece faced after joining the euro?
In Eve Online, Guðmundsson oversees an economy that can fluctuate wildly — he says it expanded 42 percent between February 2011 and February 2012, then contracted 15 percent by the summer. His team will periodically have to address imbalances in the money supply. For instance, they can curb inflation by introducing a new type of weapon, say, to absorb virtual currency — not unlike the way a central bank might sell bonds to shrink the money supply. (In theory, Eve Online’s currency has real-world value — the highest-level spaceships, the Titans, are worth the equivalent of $5,000 to $8,000.)
Guðmundsson, who gave up a tenure track position at the University of Akureyri to join CCP in 2007, says that managing the virtual economy can be surprisingly difficult: “It’s so much more compelling and much more interesting and much more in-depth than I ever imagined.”
Periodically, for instance, CCP’s game designers will introduce a new type of technology or alter the availability of certain raw materials to keep things interesting — not unlike real-life technology shocks. But, Guðmundsson says, the players will often speculate on what the game designers are planning, affecting the markets.
And what about limitations:
As fascinating as these virtual economies can be to observe, however, experts are still divided on whether they have much to teach us about the real world.
“To this day, we haven’t seen anything in these virtual environments that violates fundamental economic theories,” says Ted Castronova of Indiana University Bloomington, one of the first scholars to study virtual worlds. After all, the fact that prices rapidly adjust to supply and demand in Eve Online isn’t shocking. Economists have studied artificial currencies in other contexts, such as cigarette trading in prisons.
Amazing…Econs needed everywhere