News, research and discussion on virtual goods, currencies and economies globally.

Internal Economy

What Would John Nash Think of Second Life?

The gold standard of MMORPG combatThe gold standard of MMORPG combatSince the 1950s, game theory has been one of the basic ingredients of economic models. Nash’s Nobel-winning mathematical discovery, nowadays known as the Nash equilibrium, opened up a myriad of ways to formally analyze situations where a number of agents try to fare as well as they can in a situation where their interests might be in conflict. Applications range from explaining specialization of animal species to predicting negotiation results between trade unions and industry representatives.

One does not need to be an expert on the workings of virtual environments to notice that most of them seem to thrive on conflict: players are encouraged to fight each other on blood covered battlefields, outbid one another in virtual markets and build alliances, guilds or corporations to get the upper hand on their adversaries. Thus, it is slightly surprising to notice that both game theorists’ interest in virtual worlds as well as virtual world developers’ interest in game theory seem to be nearly nonexistent. In this post I will first try to explain why I think that empirical game theorists and game theoretically oriented econometricians should pay more attention to these hang-outs. After that I will attempt fit myself into a developer’s skin and sketch how understanding game theory might help in designing more enjoyable virtual environments.  Read more

Gambling and econometrics in the new issue of Journal of Virtual Worlds Research

Journal of Virtual Worlds Research, an online outlet for virtual worlds -related "think pieces" and scholarly papers, has published its sixth issue, titled Technology, Economy and Standards. Below is my selection of economy related papers from the issue, with comments.  Read more

Virtual consumption: the thesis

Lehdonvirta (2009): Virtual ConsumptionMy PhD thesis on people who spend real money on virtual goods is now published. Thanks to everyone for your support! Here's the publication info:

Vili Lehdonvirta (2009). Virtual Consumption. Publications of the Turku School of Economics, A-11:2009, Turku. ISBN: 978-952-249-019-3 (printed) 978-952-249-020-9 (electronic) ISSN: 0357-4652 (printed) 1459-4870 (electronic)

You can download the electronic version of the thesis from the university library here. The print version can be purchased from the university's publisher: KY Dealing, tel. +358 2 481 4422, email ky-dealing(at) I also have some free copies to send to people, so drop me an email while they still last!  Read more

Aligning virtual economy design and business modelling

This is a rough working-in-proggress draft of a figure on how virtual economy design would fit into a business modelling ontology. Please forgive me the graphics quality and harsh colors, they will improve once I recreate it with a proper software :).

Figure on SlideShare.

The model is based on business model ontology developed by Osterwalder et al. (during 2002-2005), best documented in Ph.D. Thesis in 2004. Found here.

I will just leave the figure here as is for now, and later upload the whole thesis with more rigorous documentation and explanations.

The model is not supposed to depict all business related aspects, but
more preciesly the relevant aspects in revenue generation logic through
virtual economy design.

I welcome all comments and discussion.  Read more

Community dynamics that create demand for virtual goods: case Habbo

Update: the authoritative version of the article is now up on Routledge's site, here. For those who don't have access to that repository, the pre-print version is still available here .

Early this year, I posted a pre-print version of an article (see Why do people buy virtual goods?) and promised to post more later, as the scholarly publication process can be as slow as the proverbial snail. Here you go: a pre-print version of Virtual Consumerism: Case Habbo Hotel, a sociological study of the motivations and practices of virtual consumers in a popular teenage online hangout. The publication venue is a reasonably prestigious journal called Information, Communication & Society, to whose reviewers I and my co-authors are much indebted.

The bulk of this work was actually completed two years ago. While virtual goods have continued to spread like crazy since then, I believe the motivations for purchasing them remain the same. In contrast to the previously posted article, the main audience of this paper is sociologists. People who are in the business of selling virtual goods to other people might also find some "actionable insights" there.  Read more

Economics of EverQuest II

Ted Castronova, Dmitri Williams, Cuihua Shen, Yun Huang, Brian Keegan, Robby Ratan and Li Xiong have published a paper dealing with the economy of EverQuest II based on analyses of huge amouts of log data. See Dmitri's post at Terra Nova. Congrats! I know it must have been a huge amount of work.

I don't quite agree with their concept of mapping and the idea of talking about MMOs as if they were somehow worlds apart from the real world, but the paper offers an extremely nice quantitative view into some of the internal workings of a MMORPG economy. HIIT's Tuukka Lehtiniemi published similar work on macroeconomic indicators in EVE Online last year in his Master's thesis (including some criticism of applying the concept of GDP to a virtual economy, which Castronova et al. should perhaps have a look at).

It's been almost customary for social science oriented papers dealing with MMOs to at least mention the idea of using MMOs as a large-scale research platform to contribute something to social sciences. With this work on EQII and EVE, it looks like the tools are starting to be in place — perhaps that contribution is not too far off.  Read more

Virtual Economy at GDC2009

Game Developers Conference 2009 took place at Moscone Center in San Francisco USA in March 23. One of important keywords from this year’s Game Developer Conference is digital distribution of video games. So, many sessions dealt with issues related to digital distribution like virtual economy models, new revenue models for casual games distributed via console networks including PSN, XBLA. In addition, virtual goods trades and how to make more money through various new distribution methods were focused by a number of sessions.   Read more

Blizzard seeks statistical data analyst, SWI opens Greenland

Econometrics and statistics grad students reading this blog might be interested in the following news: Blizzard is seeking a data analyst for what sounds like it could be World of Warcraft ingame log data coupled with customer records. Thanks to Dmitri Williams for the heads-up. According to Dmitri, the position is of flexible rank/seniority, from an advanced undergrad to a Ph.D.

In other news, Edward Castronova's Synthetic Worlds Initiative at Indiana University has opened their second game, "a browser-based game of kingdoms, trade, diplomacy, and warfare in the stone age" called Greenland for beta testing. The aim seems to be to study the emergence of commodity money, but looks like it could be an enjoyable game as well!  Read more

Virtual field experiments in WoW

Photo by Flickr user drurydramaEconomic experiments in virtual worlds (or, more generally, virtual economies) have been proposed a number of times and also conducted to some extent. A recent addition to the conducting category is “Reciprocity and status in a virtual field experiment” by Andreas Nicklisch and Tobias Salz. In their study, the authors conducted a field study in World of Warcraft, seeking to investigate the role of reciprocity, and the effect of status on reciprocity, in employment relations. Reciprocity here means the observed tendency to react kindly to kind actions, even though such reactions are not enforced. Unlike previous economic experiments conducted in virtual worlds, the authors did not create an artificial setup for the experiment. Below, I summarize and briefly discuss the study and its findings.  Read more

Inductive Metanomics: Economic Experiments in Virtual Worlds

Atlas, Stephen A.
Publication information: 
Journal of Virtual World Research, Vol. 1, No. 1, July