The future of macroeconomics

by on September 10, 2007 at 7:17 am in Economics | Permalink

Several months ago I noted that a virtual world, Eve Online, had hired a real economist.  Here is his first report.  What makes virtual worlds important for economics is that for the first time ever, macro-economists will be able to do experiments.  I predict that we will see some very interesting experiments in the near future.  In the meantime here is an interesting bit from the report – the laws of supply of demand work in many worlds. 

EVE consists of more than 5000 solar systems in 64 regions. The solar
systems are connected in a complex web allowing for goods to be moved
from one end in the Universe to another. Pilots have to be careful
because in low sec and zero-zero security zones there is always the
danger of being attacked by gangs of pirates looking for easy prey….

EVE is so large it is difficult for anyone to grasp what is going on
in all the regions at any given time. Yet the markets seem to be very
efficient at distributing information resulting in symmetric prices
throughout Empire space (and even further). This is clearly visible in
figure 11 which shows the price for zydrine in three different Empire
regions.

Figure11small

Examining these time series in more detail reveals the price
difference between regions is declining over time and price
fluctuations within regions are also decreasing. This can be seen as
evidence for increased efficiency in arbitrage trading over time
resulting in symmetric prices and an overall more efficient market.

Thanks to Ambrose for the pointer.

Addendum: Be sure to check the comments for insightful details from Mike K., solarjetman and others. 

Harald Korneliussen September 10, 2007 at 9:00 am

I wonder if they have fractional-reserve banking in EVE online?

Either way, these virtual markets can’t possibly be compared to real ones until they have had a couple of bubbles, depressions, ponzi schemes and revolution attempts…

Mirco September 10, 2007 at 9:45 am

Who did said the EVE market had not bubbles in the past?
The prices of the good produced from the players that are quoted on the open market change in a much with time.
What is interesting is the fact that there is no way a government in EVE is able to impose its will on the people.

Mike K September 10, 2007 at 12:10 pm

Herald:
It just so happens that every single one of the events you described has occured in Eve.

There are only three game-controlled factions that control the space in the core of the galaxy. This exists to ease new players into the game. The real game starts at the edges, in what is called 0.0 space.

Players join corporations (complete with a board, and C-level officers), some of which specialize (mining, research, manufacturing) and some are more general. One of the distinctive features of Eve is that nearly all “items” in the game, past those low-level ones for beginning players, have to go through a complete production chain: mining asteroids for raw materials, researching blueprints for the items to be manufactured (office space on space stations has to be rented for this purpose), then the items are actually built in fatories (also need to be rented), and finally, they enter the maret (distributed by courier atd shipment corporations whose routes are protected by mercenary ones).

A famous story is that of a player who started a bank, and gathered capital from players, only to run away with it. The total in-game loot he escaped with was worth over $10,000 USD at the exchange rate then.

I’m a recovering addict, and no longer play. One of the restrictions the game places upon players, is that you can only query market prices within the space sector you are in. Thus, my corporation was in the business of collating cross-sector data to find price differences, and then follow the old buy low sell high story.

The high degree of player freedom Eve alsows as well as the large market size make it ideal for this type of experimentation. (Other similar games segment the player population into small chunks of a mere several hundred, while in eve over 25,000 may be online at the same time).

I forgot to mention that corporations can band in Alliances, which make war with each other, as well as deal in internal politics. They can and do enforce laws within their territories. Backed by both military force, and the threat of expulsion (upon loss of protection, a weak corporation may get raided by pirates who have heared of the split).

Zubon September 10, 2007 at 2:10 pm

The developers also have the power to change what computer-controlled corporations want. One way of making funds is to transport good from computer producers to computer consumers in different parts of space. If you have the central controls, you can decide that computer-controlled corporation X no longer wants quite so many units of Quafe this quarter, or perhaps it is not willing/able to pay as much, or the price it offers change more/less quickly as its quantities change. You do not need to do so much as the government when you also control every non-player character corporation.

As solarjetman says, the developers also control the laws of physics. They can add new regions, they can create a process to turn Tritanium into Zydrine, they can do just about anything that will not drive away massive numbers of players. Corruption (or rumors thereof) within that system have been one of EVE’s larger problems. When the developers (who control the laws of physics) play the game, people get very suspicious when their friends suddenly get a windfall. “Huh, that new region with easy resource access is only available through [corporation]-controlled areas of space.”

mike September 10, 2007 at 5:21 pm

“””Without sythesized Human Motivations how “virtual” can this be?”””
Posted by: R. Richard Schweitzer at Sep 10, 2007 10:07:03 AM

Why in the world would you need synthesized human motivations when you have game players with real human motivations?

AV September 10, 2007 at 8:24 pm

I’m no economist either, but I am under the impression that these “regions” in this game can be compared to countries if we were talking about the real world. If this zydrine can be compared to crude oil, or gasoline, I don’t think the markets in this world of EVE are accurate. For example, gas prices in San Juan, Puerto Rico in 2005 were $1.74. While gas prices in the Netherlands were $6.48. The prices don’t always run simultaneously that close together as they do in this graph from the EVE game. Supply and demand go hand in hand in the real world, and they don’t seem to in this graph.

Firozali A.Mulla MBA PhD September 11, 2007 at 5:16 am

Sir.
I read many papers yesterday and today. As much as I could to see the ray of silver in the blue clouds nope Nope. There isn’t any. All depressing news. My friends are broke, some committed suicides, some left their husbands or wives for better lives with elite and some are still living on one dollar a day without complaining as they know not what 9/11 is sir. TVS show the prominence of the blow of the twin tower that is not there. Why do we go into past??? Are we not learning from the past and learning from the past. This is not what I see. Sad True Wee Monsieur

Firozali A.Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

Dana Smith September 11, 2007 at 4:57 pm

It’s important to recognize that the author of this document was comparing zydrine prices in “empire” or “core” regions where transit lanes are safe and there are no tariffs. Therefore, the only cost involved with of shipping equipment and resources between one Empire region and another is merely time, thus, it makes perfect sense that the prices would roughly mirror each other as opportunitsts fill all of the zydrine trading niches.

Mordanian Ryff September 11, 2007 at 11:07 pm

As a character in EVE, you have the opportunity to do just about anything on the market you want with the exception of a stock/bond market. My human holds an MBA, and knows how to use that in calculating price differentials for arbitrage, placing buy and sell orders based on the relative mineral values and costs of production, and the any other aspects of the game. The one massive bonus that EVE has is that there are no politicians (except for the Caldari-leaning game devs) to impose tariffs or unnatural barriers to trade. There are taxes levied with each transaction that have to be accounted for, but these are generally so low (and can be lower depending on your skills and connections) that they are usually ignored.
There are both buy and sell markets for every good, and the market system even allows you to view historical trends and price ranges.
In addition to the markets, which are for more common goods and parts, there is the contract system, which allows for combinations of items, sales and auctions of rare items or packages, and more, providing for a robust market economy. Contracts are subject to a small brokerage fee.

While some here have argued that it isn’t a true market, I would argue exactly the opposite. There are “Angel Investors” in the form of corporation members and friends who can give you money to buy say a battlecruiser or a skillbook. Although it is lacking a capital market for stocks, bonds, hedge funds, index funds, etc., this only improves the creativity of the players to exploit the four main ways to make money – market arbitrage, mercenary missions, bounty hunting, and mining/manufacturing.

All in all, it is one of the most realistic RPG’s in existence.

Wser December 3, 2007 at 9:21 pm

I am looking for 翻譯社,who can help me to translation these words?
eg:女優、傢俱、搬家、室內設計?
Thanks a lot.

Joric Kos June 29, 2009 at 9:13 am

By the way, Eve-Online has hired a full-time economist to manage that aspect of the game.
http://www.reuters.com/article/technologyNews/idUSN0925619220070816

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