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Book Review: Virtual Economies from MIT Press

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Title: Virtual Economies

Authors: Vili Lehdonvirta and Edward Castronova

Publisher: MIT Press

Copyright: 2014

ISBN13: 978-0-262-02725-0

Length: 294

Price: $45.00

Rating: 94%

I received a promotional copy of this book from the publisher.

Designing playable, let alone interesting, video games is difficult. Massive multiplayer games, especially those that allow trade among players, increase design complexity considerably. It’s easy to get lost in the weeds, tweaking prices of individual items or resources to make them more or less accessible to the players and finding the best ways to move money into or out of the game’s economy.

In the face of that complexity, designers must remember their primary goal: earning money for the publisher. Early in Virtual Economies, Lehdonvirta and Castronova lay out the three main objectives of virtual economy design: creating content (both by the producers and the players), attracting and retaining users (attention), and monetizing the game’s virtual resources to create an income stream for the producers. These objectives frame their analysis throughout the book, providing a coherent narrative that emphasizes the importance of designing a system so it generates revenues needed to sustain a game or community.

Unintended Consequences

One source of joy and fear for designers is discovering how their users will creatively exploit the rules of a game to create the experience they want. In fact, the authors point out that designing an inefficient currency might make a game more playable, perhaps because players would develop strategies and tactics to work around the inefficiencies or negotiation and trust issues would lead to interesting player interactions.

You can also try to make virtual money through traditional economic activity. In games, as in any economy, some players search for arbitrage opportunities. When discrepancies arise between the objective value of an item and its perceived value, investors can attempt to make a profit by buying or selling the item. In the stock market, these inefficiencies might arise when a company’s stock is undervalued because investors give too much weight to recent sales data. Investors can buy the stock, hold it until it reaches its proper value, and sell to collect the profits.

Some games offer more straightforward examples, such as allowing users to buy a leather jerkin at a shop in one part of the virtual world and sell it in another region for a significant profit. In either case, players who enjoy this type of activity can take advantage of in-game commercial opportunities.

Faucets and Sinks

Just as players try to acquire game resources, designers must find ways to remove those resources from the game. Maintaining the proper flow of money using macroeconomic policies requires a tricky balancing act between having too much or not enough money in the system. Without income, players can’t buy items they need or desire, but too much money produces in-game inflation that puts even routine purchases out of reach of newer players.

Lehdonvirta and Castronova describe how designers can use money faucets and money sinks to add or remove virtual currency from the game. Money faucets might be as simple as gaining treasure from killing orcs or as complex as arbitrage, while money sinks could include maintenance costs for dwellings, replacing damaged equipment, or securing transport to remote areas.

Virtual Becomes Real

Finally, it’s entirely possible for in-game items and virtual currency to cross over into the real world. Some rare World of Warcraft items command hundreds of dollars on eBay or elsewhere and entire companies in Romania and China make money through “gold mining” (defeating monsters to gain their treasure and selling the gold to other players) or leveling up characters for players who lack either the time or inclination to do it themselves.

Virtual currency can also be used in place of real money for physical transactions, as happened with the Q coin used in Chinese producer Tencent’s game Tencent QQ. A lack of credit cards or easy online payment hampered online commerce in China at the time, so players used Q coins as a medium of exchange. Players transferred Q coins to settle debts or, after the company (at the insistence of the People’s Bank of China) limited the amount that could be transferred at one time, created accounts with standard amounts of Q coins and gave their transaction partners the account’s password.

Conclusions

Virtual Economies combines standard material found in earlier works such as The Economics of Electronic Commerce with new applications told through the eyes of individuals who are both academic analysts and practitioners. Specifically, Lehdonvirta and Castronova provide a substantial overview of traditional economics, such as supply and demand curves and marginal analysis, as well as more recent topics from behavioral economics that help explain why and how individuals deviate from the traditional rational actor model. Add in discussions of what makes for a good currency, how markets function, and macroeconomic issues removes the need for students to buy multiple texts to get the full picture.

Many professors and independent readers will choose to supplement this book’s information with reading packets and online resources, but Virtual Economies could easily stand alone in any context. Highly recommended.

Curtis Frye is the editor of Technology and Society Book Reviews. He is the author of more than 30 books, including Improspectives, his look at applying the principles of improv comedy to business and life. His list includes more than 20 books for Microsoft Press and O’Reilly Media; he has also created more than 20 online training courses for lynda.com. In addition to his writing, Curt is a keynote speaker and entertainer. You can find more information about him at www.curtisfrye.com and follow him as @curtisfrye on Twitter.

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Written by curtisfrye

January 5, 2015 at 10:00 am

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