In late 2001 an economist called Edward Castronova
made tsunami sized waves in the world of economics
when he published a paper claiming that an
isolated place called Norrath had a currency
stronger than that of the Japanese Yen- an
especially bold claim considering Norrath
had less than a million inhabitants, had only
existed for about two years and didn’t exist
physically.
Yes, Norrath was entirely virtual and populated
exclusively by players of the video game EverQuest.
Released in 1999, EverQuest is an immensely
popular and influential massively multiplayer
online role playing gaming (MMORPG).
Set in the magical fantasy world of Narroth
and boasting an impressive (for the time)
near half million subscribers at the apex
of its success, EverQuest came to the attention
of Castronova at first much in the same way
it came to the attention of anyone- he just
thought it sounded like a fun game to play.
However, as he became more familiar with the
game, he noticed some rather fascinating things
about how the virtual economy had developed
within the game.
This all culminated in him publishing on the
Social Science Research Network a humorous
but excellently researched, and ultimately
groundbreaking, paper titled, Virtual Worlds:
A First-Hand Account of Market and Society
on the Cyberian Frontier.
By his own admission, Castronova stated, “I
thought maybe seventy-five people would read
it and that’d be great.”
Instead, it quickly received over 16,000 downloads
(and today is sitting at closer to 50,000).
While this might not seem like much, let’s
remember context here- this was an academic
paper published on an online academic journal.
Needless to say, that number of downloads
made it the most downloaded paper in the history
of the Social Science Research Network, which
at the time featured almost 50,000 academic
papers, including many dozens written by Nobel
laureates.
Why was this paper so fascinating to the world
of economics?
As economist Yanis Varoufakis noted, “Economic
theory has come to a dead end — the last
real breakthroughs were in the 1960s.
But that’s not because we stopped being
clever.
We came up against a hard barrier.
The future is going to be in experimentation
and simulation — and video game communities
give us a chance to do all that.”
What Castronova had stumbled upon was essentially
an economist’s dream- virtual worlds the
researchers could use to analyze in a scientific
manner various concepts in their field using
large data sets and real people populating
those worlds.
Or as Washington Post journalist Brad Plumer
succinctly stated, in virtual worlds, “The
data is richer.
And it’s easier to run economy-wide experiments
in a video game — experiments that, for
obvious reasons, can’t be run on countries.”
In short, economists in academia were intrigued
with Castronova’s paper and its implications
for future research.
So what did Castronova find?
After painstakingly pouring over the available
data surrounding the world of Norrath, he
was shocked to discover that in real world
dollars Norrath had the 77th highest GNP per
capita, placing it squarely between Russia
and Bulgaria at the time.
How was this possible for a virtual world
with only virtual currency?
At the height of EverQuest’s popularity,
sale of in-game items ran rampant and at one
point in time a player could pretty much buy
anything they wanted in-game, regardless of
how rare or powerful it was, so long as they
could flash the cash to make it happen.
Although Sony, who published the game, would
make several attempts to quash this practice,
claiming amongst other things that all of
the items for sale were their intellectual
property, as well as outright banning players
they caught doing this, the sale of in-game
items and avatars became a thriving industry
on sites like Ebay.
In fact, former child actor Brock Pierce (perhaps
best known as a kid for his roles in Mighty
Ducks and First Kid, and as an adult for his
work in crypto currency) even started a surprisingly
successful company, Internet Gaming Entertainment
Ltd (IGE), which dealt in these virtual goods
in exchange for real money.
The company maintained a rather large staff
of low-waged workers who worked in Norrath
and the real world, doing things like meeting
to exchange goods, as well as building up
avatars and acquiring virtual goods for future
sale.
In any event, Castronova analysed over 600
illicit sales outside the realm of Norrath
on sites like Ebay and then simply compared
this to the value of the item in-game in the
principle currency of Norrath- Platinum Pieces.
When he did this, Castronova discovered that
the relative value of a single Platinum Piece
compared to the US Dollar was $0.01072.
While this may not seem all that much, as
Castronova pointed out, at the time, “its
value exceeds that of the Japanese Yen and
the Italian Lira.”
With this value in hand, Castronova was then
able to roughly calculate a number of other
interesting things about the economy of Norrath.
For example, it turned out the average citizen
of Norrath earned around $3.42 per hour (or
about $5 an hour today) when taking into account
the value of the items and in-game currency
they could realistically acquire during normal
play per hour on average.
Combining this with the estimated time extreme
players sunk into the game (according to data
gleaned by Castronova in surveying over three
thousands players), Castronova calculated:
Many users spend upwards of 80 hours per week
in Norrath, hours of time input that are not
unheard of in Earth professions.
In 80 hours, at the average wage, the typical
user generates Norrathian cash and goods worth
$273.60.
In a month, that would be over $1,000, in
a year over $12,000.
The poverty line for a single person in the
United States is $8,794.
Looking at players of every time commitment
level, Castronova determined that, despite
the game being extremely new, the average
player of EverQuest already had over $3,000
worth of sellable goods locked up in the game.
But we’re not done yet because Castronova
was then able to roughly calculate the gross
national product of Norrath based on the value
of the (entirely virtual) goods it produced
in 2001.
His final number?
About $135 million.
While, again, this may not sound like much,
divided amongst the estimated total number
of Norrath denizens, that meant the GNP per
capita of the virtual kingdom was $2,266-
a figure that, as previously mentioned, theoretically
ranked the computerised state the 77th highest
on Earth at the time.
Naturally, this information peaked the interest
of Castronova’s fellow economists, as did
other observations he made about the virtual
world and economy he was studying.
For example, according to Castronova one of
the more curious things he noticed during
his research was that, despite every effort
being made by Sony to give everyone an equal
footing when the game began, financial inequality
was quickly rife amongst the denizens of Norrath.
Additionally Castronova also observed how,
much like in the real world, the wealthiest
players would often hoard their wealth and
use their vast resources to pay poorer characters
to do all of the pointless busy work they
didn’t want to waste time with, in effect
becoming pseudo-employers who kept the lion’s
share of any profits made via the work of
the plebeians to themselves.
Anecdotally, Castronova would say of his own
time in-game as a low level player with no
resources: “My problem is that I am under-equipped.
I have been basically naked, carrying only
a simple club, a caveman in a world of cavaliers.
My poverty is oppressive – no amount of
rat fur is sufficient to buy even a simple
tunic at the ludicrously high prices of the
merchant biots.”
Naturally, as the game evolved, the whole
“initial equality” thing also died off
for some, thanks to those markets where players
who had disposable income in the physical
world could simply buy whatever they wanted
for real money and enter the game vastly more
powerful and capable than a player without
this option.
Since Castronova’s paper, and partially
as a direct result of his work studying virtual
economies, the one time self professed “academic
failure” and “schmo at a state school”
managed to leverage this to level up in real
life- securing a tenured position at Indiana
University Bloomington as a professor of Telecommunication
and Cognitive Science, as well as coming to
be known as the “founder of the field of
virtual economics”.
And as many other virtual worlds with complex
virtual economies have likewise sprung up,
economists and other scientists continue to
study them, as they make great petri dishes
to observe how various variables result in
changes in economy and human behavior.
Going the other way, gaming companies like
Valve have taken to hiring economists to help
them manage their virtual worlds.
As economist Robert Bloomfield notes, “If
you’re creating a game with 100,000 users,
with things that they can buy and sell, you
need an economist just to help you tweak that
system so that it doesn’t spin out of control.”
As for Castronova, he concluded his ground
breaking paper by waxing poetic about the
potential virtual worlds could have with the
application of new technology, stating
The impact on Earth society is hard to overestimate.
With the development of voice technology,
communication in Virtual Worlds will move
from cumbersome chat to telephone-like conversation,
thus greatly enhancing the Virtual World as
a place of social interaction.
Families living thousands of miles apart will
meet every day for a few hours in the evening,
gathering their avatars around the virtual
kitchen table and catching up.
And the day of driving to the store may well
be over.
Earth roads will be empty because, instead
of using them, everyone will be sailing across
the azure heavens on their flying purple horses,
to shimmering virtual Walmarts
in
the sky.
