Virtual economies mirror the real deal

USC (US)—Economic volatility is a fact of life, even in cyberspace. A new study finds online role-playing games in many ways mirror the real world and could provide a testing ground for policy theories.

While prior research has looked at economic behavior on the individual level in virtual worlds, the latest research by Dmitri Williams, assistant professor at the USC Annenberg School for Communication, is the first to calculate big-picture economic markers such as gross domestic product (GDP) and inflation in an online setting. The study appears in the August issue of the journal New Media & Society.

“Our concern was whether the economic behaviors within a virtual world function in the same way that they would in the real world—where, it should be noted, currency is also largely representational,” says Williams.

Williams and coauthor Edward Castronova of Indiana University were given access to 314 million actual transactions from Sony Online Entertainment’s large-scale online role-playing game EverQuest II (EQII). All data in the study were made anonymous for privacy.

“The rapid changes in GDP may not be a function of the fact that the economy is virtual, but that it has volatile elements,” Williams explains. “After all, we have seen that kind of volatility during times of war and in developing nations in the real world.”

By looking at the going prices for virtual currency on such markets as eBay, the researchers were able to determine an ‘exchange rate’ between real and virtual currency during the study period and were then able to calculate that the real GDP of one of the servers was between $11 and $14 per registered user per month ($130-$164 per year). In the real world, that puts the average EQII player on par with citizens in developing nations such as Liberia, Congo, and Burundi.

Real-world GDP is measured as the value of the final goods sold in an economy, and the goods in EQII correspond to actual goods, such as food (e.g., bread and alcohol), clothing (e.g., armor and shields), and materials (e.g., leather and herbs).

However, “in modern, advanced economies, it is true that almost everything produced is also sold,” Williams notes. “In virtual worlds, by contrast, firsthand reports suggest that a great part of valuable production is consumed directly by the producer.”

Massive, multiplayer virtual worlds like EQII aren’t just fun and games, the researchers say. They are also a unique tool for economists seeking to better understand economic theories. Not only is data recorded automatically and invisibly for the entire economy (something the government only estimates in the real world), but virtual economies could also be manipulated as a kind of large-scale experiment to test policy ideas.

“On the one hand, virtual economies may be very precise analogs for other kinds of real-world economies, such as frontier, developing or black market economies. On the other hand, our own economy has turned out to be less stable than we’d all assumed,” Williams concludes.

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