It all began with a strange email

I worked at CCP when they hired Eyjólfur. He came in without really knowing a lot about the game world and made it his first job to learn as much as he could about how the world actually worked.<p>Given that I was a foreigner who was working and living in Iceland, I didn't have much of an evening social life. I was also one of the relatively few employees (sadly) that were really active in the game in the advanced levels of play -- 0.0, empire wars, etc.<p>Eyjólfur spent a bunch of evenings sitting with me while I played internet spaceships. He asked tons of questions and really got to learn the universe, or at least my corner of it. It was really interesting to work with him and hear him talk about his thoughts as he was putting them together.<p>CCP used to publish the Quarterly Economic Newsletter, like this:<p><a href="http://cdn1.eveonline.com/community/QEN/QEN_Q3-2010.pdf" rel="nofollow">http://cdn1.eveonline.com/community/QEN/QEN_Q3-2010.pdf</a><p>They've since stopped doing that, but you can see from that example that it used to be a fantastic resource. If you wanted to know the nitty-gritty details about the universe of EVE Online, the QEN was hard to beat.

A bit of a background: Varoufakis is something of a celebrity in Greece for being one of the first and the most vocal economists to speak out against the European strategy for resolving the Greek sovereign debt crisis. His predictions have proven to be tragically spot on so far, although it remains to be seen whether his proposal for renegotiating the European bailouts, a proposal that the left-wing SYRIZA political party (which has about 50% chance of winning in the Sunday elections and has allegedly asked Varoufakis to be its economic advisor) has stood behind, is actually a realistic one. He fled to the US and Valve after the doctoral program in Economics he had built in the University of Athens was dismantled during the crisis and after he started receiving death threats by people who weren't particularly thrilled with his opinions.

This is truly fascinating.<p>I remember hearing about virtual economies where money can be injected at any time through gold mining, etc, and that they were inherently unstable. Once you got the gold farming schemes that sold gold on e-bay, it created massive hyperinflation.<p>And it totally made sense that hyperinflation would occur since the creation of virtual gold was limitless and effortless, so the gold farmers didn't care how much gold they sold it for as long as they got real money. That rendered the price of gold worthless, and it drove up the prices of virtual goods across the board.<p>I would love to see how these problems are tackled in the virtual world.

Four years ago one of my first startup ideas I pursued was setting up an arbitrage between virtual economies. I believed then (and still believe) that it is a huge chunk of the future. Everything that is tangible now will become software and intangible in the future. That means the virtual economy is set to eclipse the current one.<p>I spoke with some somewhat famous startup-type people; several I met on HN. None of them seemed interested in my pitch (I was looking for a cofounder). One basically said "I've already got my FU money. This just doesn't excite me that much."<p>I'm looking for some cool things to happen in this space over the next decade. When I was kicking this around we had all sorts of things we wanted to try. It'll be interesting to see if any of them come to fruition. One of the key questions in this space is whether it's even possible to manage virtual economies as this guy wants to do, or it there's always some level of abstraction that's remains out of reach. My money says the thrill of being able to finally experiment will be short-lived. Odds are each economy we create with gaming rules will simply be a small subset of a much larger informal economy. Cool stuff.

Among virtual economies, EVE Online's economy is the real deal. The EVE game economy is I dare say more developed and complex than nearly any other games' - it has many kinds of input factors and stages of production, and many of the production facilities/resources are player-controlled and their fate determines on political maneuvering, war and sabotage between player corporations (guilds). The price of most items in EVE (ships, weapons, components, structures) is determined by the state of production and speculation in the economy, so CCP has to consider the economic impact of nearly every single change they make to the game world. (They hired their in-house economist in 2008 IIRC.)<p>If any of you folks are interested in reading about a truly fascinating, active digital economy, you have to read the EVE economic reports and other investigations of EVE. It's like reading about mining, manufacturing and stock markets - against a background of eternal war between corporations - in far-future space.<p>EVE Quarterly Economic News, by CCP's economist Eyjólfur Guðmundsson (link courtesy of xb95): <a href="http://cdn1.eveonline.com/community/QEN/QEN_Q3-2010.pdf" rel="nofollow">http://cdn1.eveonline.com/community/QEN/QEN_Q3-2010.pdf</a><p>edit: links to additional content ----- <a href="http://pc.gamespy.com/pc/eve-online/855380p1.html" rel="nofollow">http://pc.gamespy.com/pc/eve-online/855380p1.html</a><p>&#62;&#62;&#62; EVE Online was developed to have a very dynamic economy from the very beginning. It was decided that "time" would be treated as a valuable player resource: for that reason, raw materials were spread all over the galaxy map, which takes hours to traverse. This created regional pricing. Interestingly, there were no trade hubs built into the core game design -- players gradually settled into certain areas and made their own pockets of population where trade thrived.<p>&#62;&#62;&#62; Gudmundsson had some fun examples of how intelligent virtual economies can be. He showed a graph displaying the prices of a mineral in the game known as Zydrine. Zydrine is hard to find in the EVE universe, but players had discovered that killing a certain class of drone often leaves behind Zydrine in the wreckage. This hole in the market led to lots of drone-farming, and subsequently the price started to drop. Drastically.<p>The developers decided to tweak the drop rate and this change rolled out onto the test server, unannounced, and mixed in with all sorts of other tweaks. Still, clever players noticed the change. Word got out. And suddenly, even though nothing had yet been done on the live server, prices for Zydrine spiked dramatically. Markets make for great predictors of future events!<p>----<p><a href="http://blogs.wsj.com/economics/2010/06/21/real-economist-tak.." rel="nofollow">http://blogs.wsj.com/economics/2010/06/21/real-economist-tak...</a>.<p>&#62;&#62;&#62; One of his team’s first big findings is somewhat sensitive. Confirming decades of gender research by economists, sociologists and anthropologists, Mr. Turpeinen’s group found that the same biases that have historically favored men in the real world exist in a virtual economy. Their research demonstrates that both women subscribers and female avatar characters operated by male subscribers in EVE are biased toward a slightly lower chance of success in competition with their male counterparts.

If anyone from valve is listening, would really appreciate it if you added commenting support to your blog, I am looking forward to this series of articles, it is a very interesting and unique space.

Intensely interesting. I'm looking forward to more blog entries. Though not an economist, I've always lamented the way econometrics was starved of opportunities, and the way competing ideas could both thrive with no real hope of resolution.

I guess I would be interested in a truly economics oriented game that modeled nations without it being about wars, raids, guilds, spells etc. Not sure if something like that exists though.

<i>an economy where we do not need statistics since we have all the data!</i><p>I simultaneously feel his elation and am mystified. If you have such a quantity of data that you must relate to it via statistics, how is that better than only having the statistics? Is it because you can define and calculate your own creative statistics, or...?

Fascinating read, just like many of the other Valve blogs.<p>Though, I do wish this guy could explain why real-world money Steam games in the US are often half the price of those in Australia/Europe.

An economist finally admits it why they fail so much.<p>"let’s face it: Econometrics is a travesty! While its heavy reliance on statistics often confuses us into believing that it is a form of applied statistics, in reality it resembles computerized astrology"<p>"the reason for this unavoidable failure? None other than our inability to run experiments on a macroeconomy"<p>The theories are never tested. They just get implemented. A thousand other things are happening at the same time and its impossible to get anything approaching the clarity of a double blind experiment. But the adherents act as if they've got exactly that.

Which two economies were being merged?

Looking forward to these posts. I've remember being completely fascinated by Diablo 2's virtual economy, and saddened that I could find so little articles about it.

What games does Valve have that have virtual economies?

Complete tangent, but I noticed that on Yanis Varoufakis' blog, the current entry is his interview with Max Keiser.<p><a href="http://yanisvaroufakis.eu/2012/06/15/ponzi-austerity-interviewed-on-the-keiser-report/" rel="nofollow">http://yanisvaroufakis.eu/2012/06/15/ponzi-austerity-intervi...</a><p>What's the connection? Max Keiser sounds exactly like the defective turrets from <i>Portal 2</i>. Coincidence?!

An interesting resonance with Charls Stross's Halting State.

For the sake of Pete, someone remove the parens from this man's keyboard.

Reminds me of Neal Stephenson's Reamde and the T'Rain geology

&#62;the notion that a computer game company has surreptitiously and quite spontaneously created virtual economies that it comprehends as ‘economies’ (which deserve study and regulation) was enough to write back instantly<p>Does this man believe we should have legal regulation of game economies? Oh wow.

i think the gaming sector with its virtual economies is a very good representive for "real" economies. in both economies it's all about feeling, very irrational. many panics and hypes. it's a bold move by valve to hire an economist-in-residence. they are going for the big shot

Maybe it's getting late, but I think i could really use an upvoted tdlr for this...

This is awesome.