“Economics and gaming: A model economy: Should links between real and virtual economies be encouraged or banned?,” The Economist, http://www.economist.com/finance/displayStory.cfm?story_id=3577988, 20 January 2005.
By special request, a story on Keynescraft and cross-reality currency trading
For players of online role-playing games such as “EverQuest” and “World of Warcraft”, battling monsters and amassing treasure is an enjoyable form of escapism. Yet the real and virtual worlds are increasingly intertwined. For many years, game items such as swords or gold have been traded online: virtual objects are sold for real money to the tune of at least $100m a year. But the links between real and virtual economies are now becoming far more elaborate.
Last month, a “Project Entropia” player paid the game’s creators $26,500 for an island in the game’s virtual world. (He hopes to recoup the money through mining and selling plots to other players.) This month, an “Ultima Online” player set up a scheme to let players donate items and currency to raise money for tsunami relief. Currency exchanges even allow gamers to move funds from one game to another.
Not everyone approves: some games ban the sale of game items, a few encourage it, but most turn a blind eye. But the sale of the “Project Entropia” island, and the popularity of “World of Warcraft”, a game launched in November which bans the sale of in-game items, highlight an emerging split, says Edward Castronova, an expert on virtual economies at Indiana University. “Project Entropia” and its sort are intended to be realistic alternative realities, often with a strong libertarian and free-trade bent. “World of Warcraft” and other similar games, in contrast, are fantasies with a strong sense of fair play in which status must be earned as part of a rags-to-riches storyline—so trade in game items is deemed to be against the rules.
Such bans are impossible to enforce. But “World of Warcraft” is designed to make trading less appealing, in two ways. The first is by improving the game design. If the early stages of a game are tedious, players are more inclined to skip them by buying rather than earning in-game items. “World of Warcraft” is fun right from the start, which seems to have reduced demand for in-game items on eBay. Trading can also be a symptom of mismanagement of the in-game economy. Inflation is rampant in most games, due to the convention that killing a monster yields a monetary reward [ so the money supply increases while overall production remains constant -- tdaxp]: rising prices then fuel real-world trading. But newer games have more control over the money supply, which seems to reduce such trading.
Normally, this newspaper’s devotion to free trade is unwavering. Yet curbing the trade of in-game items is defensible, since game economies are run to maximise fun, not efficiency. While writing his forthcoming book, “Synthetic Worlds”, Mr Castronova has been pondering whether real economies could be run for fun too. “Wouldn’t that tip the economics texts on their heads?” he muses.