Virtual Economies Remain Badly Flawed Research Tools

1229493866106_us_backyard1_997 There's been a lot of work done on virtual economics over the past few years, from Indiana University studies to the Virtual Economy Research Network.

These researchers all use virtual economies as a test-bed for real-world economic policies, as well as testing grounds for real-time experiments on price, economic growth, and wages.

They had best be cautious. As Pixels and Policy reports, virtual economies are far from the hailed research tools some virtual world cheerleaders think.

Problems in the Virtual Economy

According to an article by VentureBeat, the virtual world news and reporting wire, virtual worlds escape from the confines of traditional economics by doing away with object scarcity. People needn't compete for scarce resources when more resources can be produced at the click of a mouse.

Any enforced scarcity is artificial, as an endless number of rare swords can be produced without any decrease in quality of the sword itself. Not to mention, as Live Gamer Chief Technology Officer  Bill Grosso mentions, money is readily available in the virtual world.

While the problem in our current economic crisis seems to be getting consumers to spend money and jump-start the sagging economy, virtual worlds suffer the opposite problem. The availability of both money and items creates a situation where the rate of growth must be slowed or risk destabilizing the fragile virtual economy.

As Grosso notes, virtual economies also provide for rapid price adjustment with next to no opportunity cost. What would take time and effort in the real world is instantaneous in the Metaverse:

Price testing is nearly frictionless. You can bucket test prices for
items with different users. (This would be much more costly in the real
world. Imagine if Wal-Mart tried to offer one-half of its customers one
price and the other half a different price. Or even if they tried to
change the price for a week to see what would happen. They’d have to go
in and physically relabel everything.

Researchers anxious to look for comparisons between the real and virtual economies are attempting to compare to vastly different animals. Expecting consumer consumption in Everquest II to compare in any way to real-world consumption patterns or price trends fails to take into account the vastly lower cost of action in the virtual world.

Building a Better Virtual Economic Model

In order to build a virtual world that accurately simulates real-world action, researchers will have to remove all of the aspects that draw players to participate in virtual economies. The ability to adjust prices instantly and send products without transaction costs is a major draw to closed-economy games like World of Warcraft. 

Players are inclined to take risks with money precisely because money is so freely available. This leads to the erratic economic spikes and troughs seen over the course of Edward Castronova's Everquest II economic survey. As we've seen in the real-world, a large economic trough isn't easily erased by an injection of easy money-making quests.

Grosso argues that many of these problems could be dealt with by artificially creating scarcity in unfun ways: frequent weapon breakage, limits on transactions, fees for selling and shipping virtual goods. But this will turn off players, leading to virtual economy research worlds filled with participants well aware of their capacity as observed actors.

The virtual world has some kinks to work out before it can be taken seriously as an economic simulator.