A Chequer-Board of Nights and Days

Following up on this, be sure to read this, which expands on the subject of the previous post by studying the specifics of fictional markets from the online gaming world:

THE sci-fi dream of the computer-generated virtual reality--so familiar to readers of "Neuromancer" and viewers of "The Matrix"--has finally come true. But, as is often the case with guesses about future technologies, it has not come true in quite the way that many people expected.

While scientists developed sensory-input devices to mimic the sensations of a virtual world, the games industry eschewed this hardware-based approach in favour of creating alternative realities through emotionally engaging software. "It turns out that the way humans are made, the software-based approach seems to have much more success," writes Edward Castronova in an illuminating guide to these new synthetic worlds.

Millions of people now spend several hours a week immersed in "massively multiplayer online role-playing games" (MMORPGs). These are often Tolkienesque fantasy worlds in which players battle monsters, go on quests, and build up their virtual power and wealth. Some synthetic worlds are deliberately escapist; others are designed to be as lifelike and realistic as possible. Many have a strong libertarian bent. Sociologists and anthropologists have written about MMORPGs before, but Mr Castronova looks at the phenomenon from a new perspective: economics.

Mr Castronova's thesis is that these synthetic worlds are increasingly inter-twined with the real world. In particular, real-world trade of in-game items--swords, gold, potions, or even whole characters--is flourishing in online marketplaces such as eBay. This means in-game items and currency have real value. In 2002, Mr Castronova famously calculated the GNP per capita of the fictional game-world of "EverQuest" as $2,000, comparable to that of Bulgaria, and far higher than that of India or China. Furthermore, by "working" in the game to generate virtual wealth and then selling the results for real money, it is possible to generate about $3.50 per hour. Companies in China pay thousands of people, known as "farmers", to play MMORPGs all day, and then profit from selling the in-game goods they generate to other players for real money.

Land and other in-game property has been sold for huge sums: one "Project Entropia" player paid $26,500 for an island in the game's virtual world last year, and has already made his money back by selling hunting and mining rights to other players. Trade in virtual items is now worth more than $100m each year. In some Asian countries, where MMORPGs are particularly popular, in-game thefts and cheats have led to real-world arrests and legal action. In one case in South Korea, the police intervened when a hoard of in-game money was stolen and sold, netting the thieves $1.3m. In-game money is, in short, no less real than the dollars and pounds stored in conventional bank accounts.

Virtual economies are an integral part of synthetic worlds. The buying and selling of goods, as the game's inhabitants go about their daily business, lends realism and vibrancy to the virtual realm. But in-game economies tend to be unusual in several ways. They are run to maximise fun, not growth or overall wellbeing. And inflation is often rampant, due to the convention that killing monsters produces a cash reward and the supply of monsters is unlimited in many games. As a result, the value of in-game currency is constantly falling and prices are constantly rising.

Market economics studies + the online gaming world = a few of my favorite things, by the way.