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Video Game Company Hires Economist To Study Virtual Worlds

Filed by KOSU News in Business.
June 25, 2012

Say you’ve spent years studying the real economy, with all its messiness and uncertainty. Then you stumble into a world where there’s a record of everything everyone has ever done.

This, more or less, is what just happened to Yanis Varoufakis.

“It’s like being omniscient,” Varoufakis told me. “It’s mesmerizing.”

Varoufakis is an academic economist. He recently took a job at Valve, a big video game company. He wants to figure out the virtual economies that exist within the company’s games, which are played by millions of people.

“Valve doesn’t care about anything other than creating games,” Varoufakis said. “Suddenly, they’ve wound up with economies.”

Take, for example, Team Fortress 2.

It’s free to play, but players use real money to buy virtual stuff within the game. The game doesn’t have its own currency, but players can trade stuff with one another. In other words, it’s a barter economy.

Varoufakis expected that a form of money would evolve within the game — in the same way that cigarettes became a kind of money in a World War II POW camp, and canned fish serves as money in some U.S. prisons.

And he thought he knew what the money would be: Keys. In the universe of the game, players sometimes find crates full of goodies. You need keys to open the crates. Any key opens any crate.

If people were using keys as money, you would expect to see lots of instances where players traded something to get keys, then quickly traded the keys to get something else. And you would expect the value of keys relative to other things to be somewhat stable across different transactions.

When Varoufakis looked at the data, he found that keys did serve as money — sort of, sometimes. At other times, hats were a kind of money. Sometimes, metal was money (metal can be turned into guns within the game).

What determines when one thing or another serves as money? “I have not managed to shed light on this,” Varoufakis told me. “it’s still a mystery to me.”

Figuring out which items serve as money Varoufakis is a first step toward asking bigger questions — questions that any economist would want to answer to understand the world.

How and why do bubbles form? (There was apparently a crazy bubble in a particular type of hat that became fashionable in the game.) What drives economic growth? What causes inflation?

“The dividing line between economic analysis, which is what I do, and game design, which I know nothing about, is suddenly blurred,” Varoufakis says. “Effectively, they are designing markets, even if they don’t know they’re doing it.”

For more, read Varoufakis’ new blog about his work at valve. And here’s a BBC story about another game company that hired an economist a few years back. [Copyright 2012 National Public Radio]

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