Learning from virtual economies
Scientific American has a nice article about virtual economies in games like Second Life.
Tyler Cowen is unconvinced about the value for real-world economics, though:
“I’m skeptical about using virtual worlds to do economics, at least as it is now,” says Tyler Cowen, who holds the Holbert C. Harris Chair of Economics at George Mason University. “What you do in experimental economics is you take undergraduates and put them in lab settings and play economics games and you measure the results. It’s like a created world, but it’s not in cyberspace. What makes experimental economics work is that you truly have a controlled experiment. When you have these virtual worlds, as I understand, people are not conducting controlled experiments. They’re running these onetime simulations. Whatever result you get is interesting, but you don’t know what to make of it. You’re stuck.
Personally I think the most interesting thing is figuring out what’s different about virtual economies and why. That might give some insights into how real economies work.
(HT: Lightspeed Venture Partners)
3 Comments
One of the things about virtual economies that I’d like explained is the pricing model. Specifically, in RL (so-called “real life”), when a consumer purchases a large quantity of something, there’s usually a volume discount. In virtual economies (as least the one that I’ve been involved with - Runescape), if you want to buy a large quantity of something, you pay a *premium* to the seller for providing the large volume. This is true despite the fact that there is in many cases unlimited storage capacity and no overhead for holding inventory in the virtual world.
Eliezer: That’s an interesting observation. What does the seller’s production technology look like? Are there diseconomies of scale (average cost increases at high output levels)?
No, interestingly, at higher output levels the average cost actually *decreases*. As a producer works, his experience levels increase which allow him to use more advanced virtual technologies and to produce more efficiently. Still, by providing a large quantity of the product, the producer saves the buyer hours of laborious effort (the tedious mouse-clicking) and the buyer pays a premium for being able to buy a large quantity in a single transaction.