Video Game Theory

A few weeks ago, Nathan Danylczuk wrote an article, The Political Economy of Diablo II, in which he observed "that the world and community of Diablo II on battle.net is really the ultimate capitalist game and society; it is a right wing libertarian anarchist ideal in practice..."

This much I agree with (except the right-wing part), but Nathan goes on to conclude that

it tells us something about government and government regulation: that we need it, at least in some form or another. People, when left to their own devices, will cause more trouble than benefits; the competition of the market alone cannot adequately take care of everyone. There must be some sort of government regulation that will keep things ?in order? and that will make sure, or at least attempt to make sure, that everyone plays by the rules...

Diabloii.net has now published my response, The Political Economy of Diablo II: A Critique.

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One problem that MMORPG

One problem that MMORPG designers can't seem to grasp is the nature of inflation. The game's currency units are almost always preposterously abundant and of little practical utility, leading to hyperinflation in the game's youth and ultimately to the currency being abandoned. In D2, the Stone of Jordan arose as the currency unit for reasons already mentioned. The game I played heavily, Mankind (mankind.net), hadn't arrived at a solution by the time I quit.

The basic problem is that you get money and items by killing monsters, which are essentially infinite in number. Therefore, it's basically impossible to design a truly finite (and thus perfectly scarce) reward-good to function as money. Even SoJ's, for example, are not finite. They function, and exhibit low price inflation, only because they are dropped at a very low rate.

Excellently done,

Excellently done, Micha.

Dumb question from a non-player -- what is a stone of jordan? If it was selected as the currency by the market, I assume it has in-game utility that caused people to prefer it over useless gems and the like, right?

Cap, You can find the stats

Cap,

You can find the stats for the Stone of Jordan here. It does have in-game utility, although it doesn't seem as useful as one would expect it to be given its value. It's valuable for a few other reasons as well: it's small (thus useful for trading because you can fit the maximum number of 40 on the trade window), relatively scarce, with fixed (non-random) stats.

Sounds a lot like gold,

Sounds a lot like gold, doesn't it? Do the economists studying MMORPGs take appropriate note of the emergence of market-chosen currencies?

Maybe it's a crazy dream, but I'd be thrilled if these games could lead us back to a gold standard.

Indeed it does sound a lot

Indeed it does sound a lot like gold, although I'm not a big fan of the gold standard.

The only economist I am familiar with who studies video game economies (although I know there are more) is Edward Castronova, whose article is cited at the end of mine. He focuses on the economy of Everquest, which has a currency that was chosen both by the market and by the game's creators.

Interestingly, from the abstract of the article,

    The nominal hourly wage is about USD 3.42 per hour, and the labors of the people produce a GNP per capita somewhere between that of Russia and Bulgaria. A unit of Norrath's currency is traded on exchange markets at USD 0.0107, higher than the Yen and the Lira.