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What Can Video Games Teach Economists?

Article  by  La Rédaction INAGLOBAL  •  Published 12.11.2015  •  Updated 12.11.2015
Eyjolfur Gudmundsson
Eyjólfur Guðmundsson, Rector of the Universtiy of Akureyri and former CCP’s Lead Economist speaks about his experience with the game EVE Online.

How did you come to work as an economist with a video game company, in the past few years?

Eyjólfur Guðmundsson: That is an interesting story - it goes back to 2004. CCP publishes the online game EVE Online in 2003 and I just found it interesting. In 2004, there was a seminar at the university I worked for on experiments in resource economics. ” After the conference, there was a guest, the main designer of many of the systems within EVE Online, and he maintained that they had a fully functioning economy and once they had a large enough community, it would indeed function as an experimental setting and I found it quite interesting. Two years later, in 2006, they advertised for an economist, so in 2007 I started working for them. I thought I might be working there for a year or two at an interesting project, and I ended up being there for seven years.

Is it possible to compare the inner economy of a multiplayers game to the real world's economy?

Eyjólfur Guðmundsson: This is something that I learned as soon as I started working then, there were other aspects that were really interesting :researching human behavior in economic settings in general, not necessarily to compare them directly to the real world but rather, how do human beings behave if they have a different setting, because, in EVE Online, there is no government, there are no taxes imposed by the system, there is no central government and people have to group together to form governments, to form liaisons, to form corporations, more than in real life, and they have to execute their own laws, and it's quite intriguing and interesting to see how the market functions then, and it actually becomes as close to laissez-faire as possible. I don't think that anyone has ever in the world of human history been able to repeat a laissez-faire experiment as much as EVE Online
To be produced, some types of rare objects require several steps, some skill sets and resources. In this case, players band together to produce these virtual goods, as publishers incite them to collaborate via the guild system. Could these alliances be compared to the way a corporate business works?

Eyjólfur Guðmundsson: Absolutely. And it is even closer to the old guilds as we used to have in Europe, because in most cases you are not an employee but a skilful laborer of a particular union of people and you get your share of the profits etc. so it is actually closer to that. People are very much partners but there are systems within EVE Online, meaning social systems, that also hire you as an employee, so I saw both types of organization being formed amongst the players, but, absolutely, this is like guilds, corporations. In some cases, these guilds or corporations have members of several thousand both in America and Europe in terms of people participating in.
Are the decisions of people motivated by the same things in real life and inside of video games?

Eyjólfur Guðmundsson: All the research that we have done at University confirmed that economic behaviors as predicted by economics are very much repeated in these settings.  What to produce, how to produce it and how to sell it: these are the three basic questions in economics  This is not a virtual economy. It is a real economy. It’s in a virtual world, it's true, but comparing it to any other social system that has commercial trade, it’s really a functioning real economy because there are intellectuals making decisions about what to produce, how to produce it and how to sell it”. These are the three basic questions in economics in all modern societies.

Can we imagine a debt in a video game? Is this kind of mechanism possible?

Eyjólfur Guðmundsson: Yes, it’s possible. It is only in contracts between players themselves and therefore the players have to enforce it ifthat deed doesn't pay. That can be very interesting indeed.

And does debt suppose the existence of law? The contract between players is not a legal contract.

Eyjólfur Guðmundsson: It is not a legal contract because there is no legal system, and I find that, they are still binding) commitments and that determines how people give collaterals and get loans. And because there is no fiat money https://en.wikipedia.org/wiki/Fiat_money, because there is no banking system, and because there is no legal system, lending becomes a high-risk endeavor. It becomes a high-risk business. In order to get a loan, you have to put up high collateral, and you pay hefty interests.
 Look at Eve Online and see what happens if you don't have fiat money: interest rate goes up and availability of loans falls down  And this is a very interesting research topic for anyone who has written a thesis on fiat money in real life. Look at Eve Online and see what happens if you don't have fiat money. Interest rate goes up and availability of loans falls down.

How is set the price of the real goods produced, bought and sold by the players?

Eyjólfur Guðmundsson: Well, pure market prices. People offer the products for sale, and people put out buying offers, and when they are met the system automatically creates a trade, so it's completely based on supply and demand at any given time, for every product in the game. There are few products that are sold by the system I think, we are talking about less than one percent.

It’s a kind of auto regulation between players and the system ?

Eyjólfur Guðmundsson: Yes, in terms of trade, there is a framework: the product has to be in a perfect shape. It has to be of a certain type, to fit in a certain category, so from that respect the market is very close to being perfect. You know what you're buying, and you will always get what you think you're getting. The mechanics of the official market is basically like a stock exchange. The functioning framework makes sure that the goods that are being traded are of a certain type in terms of value and all trades are registered and published as soon as they happen so people can monitor the market and decide to put out buy offers or sell offers, and when they are met the system simply executes the transaction.  The market is very close to being perfect 
However, you can always meet somebody in space and exchange goods. And we don't see the price on those goods, and that is just fine that is just a secondary market. If people want to trade on a different price, that is just fine, as long as it is within the system, and in video games, it is very well known there is an anonymous gold farm. This gold farm is our players who create items within the game, meet somebody in space [Editor’s note: of the game] and exchange the item, but the payment is done in real dollars, in real life, and this is not allowed according to the users' license agreement, because what this does is that it takes the game outside of the virtual into the real...So we used all kinds of methods in tracking down behavior of this type and closing accounts and making sure that people who were caught doing this were not damaging anything.
We track behavior and we point out to people that this type of behavior is not allowed and they are banned from the game either temporarily or permanently.

Would this type of regulation make sense in real world?

Eyjólfur Guðmundsson: Interesting question. I would say that it is very difficult to employ this in the same vigorous way as it is done in a video game. However, one of the reasons why we had a financial crisis in 2008 was perhaps that there was no international monitoring system of financial transaction flow between countries. I would say that what we could learn from EVE Online for real world financial market is that financial monitoring and monitoring of financial markets and financial transactions is perhaps something that needs to be on an international level, meaning institutions that are above national levels, like the World Trade Organization, the UN or the IMF.

Some publishers modify the economic variables of the game, for example by introducing in some rare artefact, with the idea of influencing exchanges between players. It is something you’re ever done, and if yes, why?
Eyjólfur Guðmundsson: Well, we know that people like to collect things, and it becomes exciting to collect different types of looks, different types of functions, etc. But in EVE Online, there is an additional element: you can really lose the things that you collect. If you go out in a very expensive ship, and you go into the wrong area, that ship can be blownaway from you, and you don't get it back.. So you go out in a very expensive ship, and fly around. You can do it in an area that is relatively low-risk, because there is police in that area, but that police is both police and judge at the same time, because if you do something wrong in that area, the police comes and kills you right away, so it’s just a system that takes care of any wrongdoing in that area. But in other areas, players are free to roam about and shoot at each other, and if you go into that area with your very expensive ship, people will notice and they will track you down and try to kill you because that is exciting in itself !
They even found ways to kill ships in high-security areas, the so-called suicide attacks. They amass enough firepower to shoot once at you, to kill your ship, but the police came in the way and killed the attackers, but they got their target, so it makes for the sense of real loss, and I think that is one of the reasons why EVE Online is so close to real economy. You actions have consequences for yourself.

Is it possible to compare this intervention by the publisher to a governmental role?

Eyjólfur Guðmundsson: We can look at it in some ways as the executive branch of a government, yes. Now, remember that we did introduce democracy into this world exactly because of this. As an executive branch we can make decisions that the players probably don't like or look like an authoritarian king. So we did not want to be in that situation. So we enabled the system and my unit within the company created this democratic system where players vote representatives into an advisory group that meets with the company twice each year, then communicates online, on a daily basis, about upcoming changes, about the direction of the game developments, about the prioritization of fixing things etc., so that is I think as close to a representative democracy online as you can get it.

We talked a lot about economy, we talked about politics also, Can we imagine those kinds of research in sociology for example?

Eyjólfur Guðmundsson:Absolutely. There were several research projects that were written while I was working at EVE Online about the actual behavior, risk taking, being evil in social corporations there were social scientists that did thesis on EVE Online data to try to figure out the behavior of individuals within that framework. from a real life question in terms of, if people can, as an example , if there is no consequence of being evil, will people become evil?
And the answer was, well, maybe a little bit, but not really.

Interview by Emeline Gaube and Martin Dourneau
