Game thinking from Adam Clare

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Economics in Video Games

“For all intents and purposes, this is an economy that has activity equal to a small country in real life,” Guðmundsson says. “There’s nothing ‘virtual’ about this world.”

A recent article in the Washington Post on economics in video games is a great read. The way economists and video game makers can work together is fascinating. It’s a perfect cycle from the digital into the physical as economists can learn from game worlds while game makers can learn from economists. The thing is, as the author points out, the two groups of people don’t always get along.

Some companies like EVE, Valve, and ArenaNet have already hired economists as these companies have realised the importance of in-game economies. I’m often shocked when I see things like how smaller companies can really mess up their business plan because they don’t know basic economic theory (although the Wired article is on freemium, you get the idea).

In Eve Online, Guðmundsson oversees an economy that can fluctuate wildly — he says it expanded 42 percent between February 2011 and February 2012, then contracted 15 percent by the summer. His team will periodically have to address imbalances in the money supply. For instance, they can curb inflation by introducing a new type of weapon, say, to absorb virtual currency — not unlike the way a central bank might sell bonds to shrink the money supply. (In theory, Eve Online’s currency has real-world value — the highest-level spaceships, the Titans, are worth the equivalent of $5,000 to $8,000.)

“We’ve even seen large alliances trying to manipulate aspects of the market to control the supply and affect prices,” Guðmundsson says. “It’s a lot like OPEC.”

One of the great things is that the in the digital world a lot more can be recorded than in the physical world. As a result, economists can perform more detailed analysis to help our understanding of both virtual and physical economies.

“In real life, if you want to know what’s happening with car sales, you might call up a handful of car dealerships and ask what their sales are like this month,” says Dmitri Williams, a researcher at the University of Southern California. “In a virtual world, you just know everything. There’s no sampling, there’s no error. It’s perfect information.”

The article also mentions at the work Yanis Varoufakis is doing at Valve, lucky for us he keeps a good blog on the economies Valve is currently running.

The Economist on the Games Industry

The Economist takes a in-depth look at the business of video games in their series All the world’s a game and they have some neat things to say about the industry. Worth a read for sure.

So who plays? The stereotypical image of the gamer—teenaged, male and probably rather nerdy— has hardly changed in 20 years. But it is no longer accurate, if it ever was. Today the average age of players in America, the biggest market, is 37, and 42% of them are female, according to the Entertainment Software Association (ESA), an American trade group. Some 72% of households in America play games of some sort, says the ESA. Even among the over-50s the share is one in three.

The article also notes the rise of mobile gaming:

Now the ever-increasing computing power of mobile phones has put the means of playing games into the pockets of people who would never think of spending hundreds of dollars on a dedicated console or a PC. The simple games that came pre-loaded onto the mobile handsets of a decade ago have evolved into a subset of the industry in its own right, appealing to a more casual crowd who play them on trains, in airport departure lounges or while waiting for the washing to finish. Today’s smartphones pack far more computing power than the original PlayStation, and games are a big part of their appeal: the two most popular kinds of software on Apple’s App Store are games and entertainment.

Read more at The Economist.

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