Thursday, January 01, 2009

World of Warcraft: A Course Proposal

Suppose you are teaching economics at a large university and want a new way of getting the interest of your students. It occurs to you that a substantial fraction probably play World of Warcraft. It also occurs to you—since you too play WoW—that the game contains a complex economy that poses all sorts of interesting questions for an economist. You announce a new course—WoW economics—and get a gratifying large enrollment. Now what?

WoW has markets and prices, including an auction house with many buyers, many sellers, and a wide range of products for sale. Prices are readily observed—starting prices, buyout prices, relative prices at one time, changes over time. Actual sales prices are a bit harder, but if your students are active players they are probably buying and selling things and could be persuaded to keep track of prices paid and received and make the information available to the rest of the class.

Consider one simple puzzle—relative prices of ore. Low level players mine copper, higher level iron, mithril, thorium, … . What determines relative prices? One’s first guess might be that prices are higher the higher the level of the ore; a high level player can mine low level ores but not the other way around, making the potential supply higher at the lower level. And higher level ore is used to make metal used to make weapons and armor useful to higher level characters, who typically have more virtual gold to spend.

It sometimes works, but not always. One reason is that ore is a joint product. Some players may spend their time wandering around in search of ore to mine, but a lot of ore, I suspect a majority, is produced by players who are wandering around killing monsters and doing quests, happen to see a vein, and mine it. As the population of a server accumulates more and more high level characters, more and more time is being spent wandering in high level areas with high level ore, producing an increase in the supply of adamantium, a decrease in the supply of copper.

What about demand? High level characters need high level gear made from high level metal, so one might expect demand to shift in the same way as supply. What complicates that is the process of skilling up—becoming a better and better smith (or jeweler or leatherworker), able to make better and better stuff. Before you can make swords out of mithril you must first make them out of iron, before that copper (I simplify, as any WoW enthusiast will realize). If your high level character decides to take up smithing he must start at the bottom. Even if he himself is a miner, he is not spending his time in the low level areas where copper is mined, so goes to the auction house instead—bidding up the price of copper.

Patterns of prices change over time, sometimes in comprehensible ways. Not long ago a new option opened up in the game, a type of character that got to start not at level 1 but at level 55. Your brand new level 55 Death Knight fights like a level 55—but if he takes up smithing it will be at skill level 1. The effect on the relative prices of low and high end ore and metal is left as an exercise for the reader.

For a second example of WoW economics, consider the opportunities for arbitrage, both across goods and across time, and the implications thereof.. Any miner can, at the cost of a little time, convert a lump of iron ore into a bar of iron, or a bar of iron and a lump of coal into a bar of steel. The result should be a predictable relation between the market prices of lumps of ore and bars of metal, or of iron, coal and steel. You can look on the auction house and see if the pattern holds. Similarly, any predictable pattern of price changes over time—some things being more expensive on the weekend, say, when more players are online—should open opportunities for enterprising players to buy low, sell high, and make a profit. The result of players doing so should be to raise low prices, lower high prices, and eliminate the pattern. Does it happen?

There is no antitrust law in WoW, which makes it a good place to observe collusive behavior by sellers. My wife, who spends more time in the auction house buying ad selling than I do, has observed both an attempt to corner a market and an attempt, at least partly successful, to form a cartel—a cartel she was invited to join. Her refusal was met by a threat to drive her out of the market by underselling her. The organizer of the cartel had apparently not read Aaron Director’s analysis, reflected in McGee’s classic article on the myth of predatory pricing; it had not occurred to him that if he was selling, at an artificially low price, ten times as many gems as the interloper, he was also losing money ten times as fast. It took only a few days for him to discover the flaw in the strategy and abandon it.

These are a few examples I have come across of economics in the World of Warcraft. It should not be hard to come up with enough more to fill a quarter. If anyone wants to try it I will be happy to offer more suggestions.

46 Comments:

At 9:22 PM, January 01, 2009, Blogger Eric Goldman said...

David, you may recall one of the other ideas I had mentioned to you: that MMORPGs in general and WoW in particular have untapped data about partnership formation and division of spoils that might be interesting to study as a comparison to default regulatory options. Eric.

 
At 4:17 AM, January 02, 2009, OpenID hudebnik said...

a high level player can mine low level ores but not the other way around, making the potential supply higher at the higher level.

Is this a typo? Did you mean "making the potential supply lower at the higher level?

 
At 4:20 AM, January 02, 2009, OpenID hudebnik said...

Anyway, sounds like a fascinating idea for a course. My only concern would be the likelihood of students in the course spending way too much time on WoW (who would not otherwise have done so) and flunking their other courses. Sorta like offering a practicum course on "the economics of heroin."

 
At 5:33 AM, January 02, 2009, Blogger pakman said...

Hey,

What about the intersection between the WoW and the real world.

ie... If copper prices is elevated, will real life 'farmers' start account and sell their copper for a real US$ denominated price?

And hence are there strategies to make a living off these kinds of low level activities.

 
At 8:29 AM, January 02, 2009, Blogger Peter said...

One other salient example of economic principles at work in WoW lies in how "wages" are generated within the game - some activities of production yield more rewards than others, but the high-reward areas tend to become congested until the returns fall (due to the congestion making it more difficult to complete tasks) and people begin to shift their attentions elsewhere - pretty much any of the high-yield farming areas in the game "suffers" from this problem. And, of course... there are differential risks in PvP servers, it'd be interesting to test whether there's a higher "premium" paid to congestion on PvP servers since congestion carries more problems there.

This congestion as a natural mechanism to balance "wages" can be contrasted to the ingame methods of production that can't be equilibriated in this manner - namely, the instances. Whenever a high-yield method of farming instances is discovered, it tends to be "fixed" because there's no other way to bring things into balance.

I did my undergraduate thesis largely on the economics of WoW. It was a pretty fun topic. I'm sure I could think of enough lessons to fill a course.

 
At 8:41 AM, January 02, 2009, Blogger Peter said...

Oh, and I also found the Auction House to be a very interesting mechanism, and I think it provides a very accessible illustration of market principles - you have to understand economics to some extent to make a profit off of it. On one of my characters several years ago I become pretty well-known on my server for controlling roughly a quarter of the market in rare/epic equipment on both factions. I made a ton of profit via arbitrage, simply scanning for underpriced items and relisting them at the median price - 10% (normally.) There was a tool named Auctioneer which could be used that would scan the Auction House and aggregate all the price data and impute estimated price levels, and having this would give me a huge advantage in recognizing what goods I could make a profit on. Since I scanned everyday, I had more information than most, so I had a relative advantage in "thin" markets of items that didn't appear very often... I would have more price data for those.

I never got involved in the materials ("mats") markets, though, as those tended to fluctuate more for whatever reason and yielded a lower return per unit time. They could be cartelized in the short term, but obviously production would shift towards those items if this went on for too long. There's a famous case out there of some people buying and relisting every item on the Auction House, however.

Of course, making a profit isn't just about following the Auctioneer data... there's a lot of implicit speculation that can be done as well when the game is patched and the value of items is expected to shift. For example, each new expansion will render some old items useless but also render some old items to be extremely valuable. Knowing which will do which is really important.

I could go on. My email is ptwieg@gmu.edu if you ever want to talk about these things.

 
At 9:25 AM, January 02, 2009, Blogger David Friedman said...

Hudebnik asks "is this a typo?"

Yes. Now fixed. Thanks.

 
At 9:32 AM, January 02, 2009, Anonymous Daublin said...

I've wished an econ prof would do this. Are you going to run such a course? If so, do tell us how it goes!

Two tips:

First, bookmark wowecon.com, if you haven't found it yet. It shows prices seen on the auction houses over time.

Also, be aware that while the Warcraft economy is fairly wild, Blizzard does watch it closely and try to modify things to make it more interesting. As one example, they added the pets achievement in a way that made the cross-faction auction house be useful. Similarly, they can always add new recipes that use items that people are currently not farming. Blizzard would be a fun place to work for an econ major.

I can add some specific nuggets to add to your list. From less mysterious to more mysterious:

Many items have seasonal demands. During December, you get "achievements" for making Christmas-related food such as egg nog, and this kind of food requires a lot of small eggs. During December the prices of small eggs skyrocketed to a gold per egg. This is at least a ten-time increase in the normal price. However, it's still small enough that it's hardly worth anyone's time to go farm eggs themselves.

In general achievements have added new demands to the auction house markets. An amusing one is that there is one for having ten pets, but each faction--horde and alliance--can't easily get all ten. As a result, pets sell for 10g-20g on the cross-faction auction houses that were bought at about 0.50g. The prices are, in my opinion, about right for (a) the amount someone would pay to finish an achievement versus getting pets the harder ways, (b) the amount of effort it takes to to use the cross-faction auction houses, which are all in out of the way physical locations. That's just a hunch, though. Wouldn't it be a good modeling question to try and account for all these effects?

A tailor can make a profit by buying cloth, turning it into bolts of cloth, and then selling it back. I'm not sure why, but I'm guessing it is because you are saving time for high-level characters who are power-leveling tailoring. It takes time to make bolts, and high-level characters can make tons of money per hour compared to low-level characters.

There is a lot of robotic farming going on despite Blizzard forbidding it. Being forbidden, it's black market activity, and it ties into the strongly prohibited trade of gold for U.S. dollars. One effect of robo-farmers is that it exaggerates price swings. This is because robo-farmers farm the same thing, automatically, until their programmers retarget them to work on something else. Sometimes a price will go to nothing and still you'll see a character posting tons of an item to the auction house for several more days. I wonder what other effects the robots have?

Finally, the best is last. I read on a mailing list that ice cold milk, one of the cheapest and most abundant items in the game, can be bought for less than 1s each yet less for 10s each on the auction house. How in the world can this be? High-level characters don't want this item, and low-level characters have more time on their hands than money. Are low-level characters being swindled?

 
At 11:26 AM, January 02, 2009, Blogger Kevin marks said...

You should also study the Runescape economy, as the transition there from an outcry market to a regulated exchange was fascinating. It is also possible to study Runescape for free rather than by paying a subscription...

 
At 12:27 PM, January 02, 2009, Blogger Amit said...

The skill-ups are valuable, which can lead to some unusual pricing. People assume that the output should be worth more than the input, but the output also includes a skill-up, or a chance of skill-up, so that decreases the price of the output item.

input → output item + skill-up

In some situations the skill-up is so valuable that the output item price goes to zero or negative. For example, you might see people offering to enchant things for free (with their materials). At other times you might see people offer to enchant/make things (with your materials) but pay you if their skill increases.

 
At 9:41 PM, January 06, 2009, Anonymous Anonymous said...

Great article, perhaps you could also consider the introduction of "dailies" (simple easy to complete quests that essentially flooded the game "world" with gold - similar to an economy printing limitless money) which resulted in a massive inflation on all the auction house items

 
At 9:06 AM, January 08, 2009, Blogger Jared Saltz said...

Being an armchair economist and an avid WoW player who despises grinding daily quests or farming mats, I have always (since starting the game two years ago) been an Auction House junkie.

Another aspect which would be interesting, could be the relation of having multiple characters with multiple professions and how that impacts the prices. E.g., I, too have a 80 Death Knight and am leveling his Blacksmithing -- therefore needing massive ammounts of ore. However, my ability to turn a profit relies on my Warrior's Disenchanting ability (a trick I assume many characters are using) which is therefore flooding the market with Enchanting materials (specifically shards) and lowering their price significantly.

This is just to say that other professions, Jewel Crafting, Black Smithing, Engineering, etc., all have an impact on even the market of Ore, as well as server population, level demographics, etc.--all in all, a worthy study for an economist or an enterprising WoW enthusiast.

 
At 2:22 PM, January 10, 2009, Blogger sdevet said...

I've found the interaction between trade skills and prices interesting.

In the real world, a t-shirt cost more than the cotton and thread used to make it, because manufacturing turns it into a value-added item.

In WOW, it's normal for a trade item to sell for LESS than the price of the raw materials. In fact, there are only a small number of items that sell for more than their raw materials.

The reason is that if I'm a tailor, for example, and I use cloth to make a pair of gloves, I end up with a pair of gloves AND one more tailoring skill point. If the raw materials cost 5g, and I sell the gloves for 4g, then that one skillpoint was worth at least 1g to me.

Looking at the AH prices for raw materials and finished goods means that we can easily calculate the value of skill points. Effectively, skill points can be considered as commodities, with variable prices.

How does this fit in to the economy?

 
At 3:46 PM, January 10, 2009, Blogger Sirg said...

Interesting article, but you forgot to take in consideration a key element to WoW economy which prevents inflation - moneysinks. WoW economy has several such moneysinks, where money disappear, in order to prevent the majority of players to achieve alot of wealth.
Such moneysinks include skill training, such as the epic flying skill (5000g), exotic mounts, flying on gryphons, etc.

It would be interesting if you could make a paralel to the real world.. how would these money sinks translate in a real world economy?

Sometimes I was wondering if game masters buyout stuff from the auction (having unlimited gold) to even the prices/offer/demand.

 
At 7:38 PM, January 10, 2009, Blogger Christine said...

If this were taught at SCU, I'd be down. I'd find a way to make it fit in my schedule!

 
At 8:20 PM, January 10, 2009, Blogger Red said...

One concern is that such a course would have an opposite affect on non-gamers. I would imagine that players of other games would understand the WoW mechanics being discussed, but the use of gaming terminology would only add another layer of difficulty for students not accustomed to gaming, MMOs and RPGs in particular.

In any case, as a TA I'll be teaching accounting courses. Unlike the economic concepts you address, the average player doesn't encounter typical accounting concepts in normal gameplay. Do you think the basic idea would be useful in teaching accounting as well, or would it be nothing but a layer of complications with very little benefit?

 
At 8:45 PM, January 10, 2009, Anonymous Brenden said...

Some of the most radical influences on the market include the development of new content via patches and expansions, esp. the introduction of new crafting professions (Jewelcrafting & Inscription being the most conspicuous).

The growth of the market from "vanilla" WoW to The Burning Crusade, as well as from TBC to Wrath of the Lich King were very tumultuous, with prices on new materials and some old materials incredibly high.

But not all changes are so drastic. Professions have been incrementally tweaked and revised over the life of the game and will continue to do so.

All of those forces are completely external. I'm not much of an economist, so I can't draw a real world parallel, but I'm sure one exists.

 
At 10:01 PM, January 10, 2009, Blogger Brent said...

WoW is for lonely fags

 
At 10:13 PM, January 10, 2009, Anonymous Sean said...

The ore issue has a third element you've left out: Customer base. A low level player cannot use thorium, as an example, so they have no reason to buy it. The only ones who can are higher level players, who have more money. Since there's more money available to buy with, the prices shoot up.

But not always. Fel Iron is the next step up from Thorium, but it sells for a lot less. (Thorium generally sells for the WoW equivalent of about $250 per ore, while fel iron sells for about $100.) Why? Because fel iron was in existence in Outland, which became the focus of the game as soon as it was released and still is to a lesser extent. Thorium is mined in a less accessed location... which is where your 'opportunity' theory comes into play.

It really is intriguingly complex.

 
At 1:53 AM, January 11, 2009, Blogger Chris said...

Excellent idea, I see someone already mentioned moneysinks. The most important moneysink related to your whole article is the auction house cut when an item is sold. Might be an idea to explore how that affects the economy also.

 
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At 8:55 AM, January 11, 2009, Anonymous JALbert said...

I'm currently an undergrad in economics, and I've thought that there's a lot of concepts that could be applied to making a WoW Economics class, from the fairly mundane concepts to the advanced ones.

Most simply, Tank/DPS/Heals shows the advantages of specialization and trade.

Each server has (crowded) professions that function as perfectly competitive markets at the low end (1-400 skill) where crafting is done as cheap as free with your mats, or in some cases below material costs or just given away. As you get into rare, high end drops, the market functions as an oligopoly market would.

Lower level markets are propped up by the opportunity costs of high level characters engaging in them. Even though a high level character could grind up mid level cloth really quickly, high level things are more worth their time to do. Someone in Trade chat was complaining that they could grind netherweave for netherweave cloth quickly, then buy 40s in thread per bag and sell the bags for 10G or so, and they thought it was totally unfair. I couldn't get it through to him that he could be making much more money doing other things at 80, so he was actually costing himself money by making bags.

Regarding the ore question, it's interesting to note how Blizzard has handled the transition to Wrath compared with the transition to BC. Starting BC Blacksmithing requires 300 BS, which means using a ton of thorium. Nobody mines thorium because you barely see it before you can hit Outland in the leveling process. Thus Thorium prices are through the roof for people wanting to level ore-based professions as a DK. Wrath, on the other hand, starts cobalt based Blacksmithing at 350, obviating the need for the high end and rare BC ores that nobody sees anymore due to Northrend. If you graphed the marginal cost of skilling up blacksmithing currently, it actually peaks at the 270-300 level and declines down through outland and into wrath, until you hit recipes that require Saronite as the cheapest ones to get a skill point.

 
At 12:49 PM, January 11, 2009, Blogger hf said...

WoW's economy follows different "laws of physics" than real life. It's fun to try and list similarities but the differences are staggering.

As already stated, raw materials are typically worth more than finished products because of their flexibility, increased demand, and skill point raising.

Players have to juggle very specific finite resources to truly understand this economy:

1) WoW gold :)

2) Time (real life)

3) Money (real life: do you pay for extra accounts to carry excess inventory?, High level alt characters, too many uses to list here. WoW TCG UDE points/cards/etc)

4) Convenience or Simplicity (slightly different from time spent, what I mean is some things require less brainpower/attention/focus but take the same amount of real-life time spent.)

5.) Character Progression

6.) "Fun"

--

A few examples:
I can scan the auction house and buy up anything listed that is below the vendor price, meaning I can pay 8 gold to buy a book that vendors for 10 or 30 silver to purchase a Jaggal Pearl and convert them into something that vendors for 1 gold each. It takes about 5 minutes of real life time. However if I choose to let it go on autopilot (scanning the auction house) I can go watch TV, and the net result is I haven't spent more than 30 seconds "in game" on this task.

Another example is running out of bank space / alts / guild bank tabs and having to buy a second account to store up items to sell later. This is a huge area for exploration because you are basically converting Dollars to WoW gold (legally, not breaking WoW's TOS). (Actually every account is converting time/USD to WoW gold, etc).

Points 4,5,6 are very ripe for discussion. Simply put, players get bored doing the same thing over and over. As a personal anecdote, I sort of trapped myself into a daily auction house routine a while back. I would spend so much time trying to master the art of profiteering, that I neglected to really improve my characters gear. I recently made a Death Knight on a new server and I'm having a blast. I spend at the most, 15 minutes a day looking for deals on the auction house over there. The server I have abandoned I left over 100,000 gold just collecting dust. My old method was tedious and I've learned a lot from it but I discovered something that baffles a lot of people.

Here's the description of the enigma followed by the explanation:

Cheap items like Ice Cold Milk and Rune Thread are sometimes sold (overpriced) on the auction house and the reason is obvious, the buyer wanted convenience, or was uninformed that a vendor NPC sells them dirt cheap to players. This convenience ties into fun/real life time saved/simplicity. It's generally more fun to build a powerful character. Do you play WoW for making gold or do you want to create a stronger avatar? Usually the latter allows you more options to join events with friends. The other factor is having a max level character with exceptional gear farms more gold rapidly. And it's more interactive/enjoyable. Killing a high level mob in Northrend is like a pull on a slot machine, you usually get some coin (50ish silver?), cloth, or random item drops. Often times the profit margins are so thin with staple commodities on the auction house, I just say "Enough with this," and go farm more gold per hour just killing monsters.

My new strategy is to try and offload excess items that I've farmed very fast. Meaning I don't like to carry something that doesn't sell for more than a week. I will aggressively sell but maintain watch on the actual vendor cost, and the list cost. Some items under 5 gold I just vendor. Even with an auction house addon like "Auctioneer" it's very time consuming to break up stacks and stacks of goods and price them. The kicker is if they dont' sell, I get 10+ pages in the mailbox of single items that stack back up to 20.

In hindsight, my new character on a brand new server is up to 7000 gold and has maxed out riding skill. Because of the way mobs drop more wealth as you level up, and how much faster you can farm them I don't see a real point abusing tradeskills or the auction house like I did last year.

A friend spent a few mornings farming mats to make hundreds of this item:
http://www.wowhead.com/?item=40959
He disenchants them and sells the enchanting materials. Ballpark profit he made maybe 2000-4000 gold. I'm unable to duplicate his feat because he uses 2 separate high level characters (max miner + max blacksmith + max enchanter). I only have one on this new server. Yet by simply questing, killing mobs, selling the drops, I earn about half as much gold as he does per hour. But I'm enjoying my experience *much* more. And frankly, after you reach a certain point of gold in this game, you realize there's not much worth buying. The only big money sinks after max riding skill currently are Darkmoon cards, mounts, pets, KirinTor ring, and other vanity items.

 
At 1:25 PM, January 11, 2009, Blogger hf said...

Simply doing the daily jewel crafting quest and selling the dragon's eye nets 300g on my server. Reputation farming yields decent gold per hour too (dailies & instances). WoW has reached the point where a player can play the game in any style they choose (solo/group/pvp/questing/raiding) and not run into issues of running out of gold. Just playing for "fun" nets me 50%-60% of the gold income per week that I would get if I used my old method of auction house+trade skill profiteering. You do have to play intelligently and a bit of experience goes a long way here. However it feels like anyone can be successful by "playing the game like your average 19-21 year old" versus focusing on the auction house+making gold. A few years ago where I saw the auction house as the best/fastest way to earn gold. Questing/farming/raiding/dungeons back then was maybe 10%-20% as effective.

Now with daily quests and the overall *better* availability of gold, people spend more on rare items, but the small cost+high volume commodities are still on razor-thin profit margins.

It is not as easy AND enjoyable to earn wealth in real life as it currently is with WoW. Typically the "fun" jobs are lucrative and require years of social ties or education. Versus WoW, I can free-lance my way to 2000 gold per week and not break a sweat, while still focusing on getting better gear to PVP with.

 
At 7:37 AM, January 12, 2009, Anonymous Matt Ruff said...

You may have seen it already, but there's a WOW blog devoted specifically to in-game money-making:

The WOW Economist

And on a related subject, some folks at the University of Manchester have published a paper on the practice of gold farming.

 
At 6:34 PM, January 12, 2009, Blogger Kristan J. Wheaton said...

We recently sponsored a lecture on the economics of virtual worlds in WoW (ie half the audience was in WoW and half was in the classroom watching the lecture in WoW) by Lenny Raymond. You might be interested in the details located here: http://sourcesandmethods.blogspot.com/2009/01/beyond-gold-farming-economics-of.html

 
At 7:13 PM, January 12, 2009, Blogger Ironarm said...

Fantastic article! I hope you get to run this course and it is successful. A while ago a Wow Pod caster and academic at UAT Rebecca Whitehead ran an online leadership course through Wow. She talks about it in this podcast (http://www.wcradio.com/archive/farmstatus/wow-wtc-02-16-2007.mp3). Its seemed very interesting and a great way of engaging students.

 
At 6:51 AM, January 13, 2009, Anonymous Anonymous said...

Anyone who traded pre and post Patch 2.4 got a quick lesson in inflation.

Patch 2.4 introduced a new, fairly inexhaustible way to make money, a guaranteed 150g for 30 minutes of your time questing once a day. Fewer players continued to gather raw materials and/or crafting in order to make money.

To make matters worse, these quests awarded low quality armor items. These items were undesirable to any player high enough to complete the quests, so players converted all their green (low quality) armor into a dust to sell on the auction house used by the Enchanting profession.

Raw materials double in price within a week. All prices on the AH go up. Dust for enchanting is abundant.

Fast forward to today where Blizzard has overcompensated and receipes that require dust require more than double the quanities required at the time of patch 2.4.

But the contant supply of green armor has been removed. And dust is now worth a small fortune.

You can spend 1000g to get a new piece of armor crafted (the highest quality possible) with say 200 spell power and spend almost the same amount to add 20 spell power to that armor because of the rarity and therefore price of dust.

 
At 8:40 AM, January 13, 2009, Anonymous deathxlock-torthaldrin said...

listin wow is awsome runescape sucsk its system is nothing like the realworld even if you to pay that is the price to take the course. wow can teach you more than buying and selling it teaching skills like to cordinate with party members. If you dont have that one skill it can affect your whole life. If you make this a college course i would take it in a heartbeat.

 
At 4:33 PM, January 13, 2009, Blogger Nullifi3d said...

This comment has been removed by the author.

 
At 4:34 PM, January 13, 2009, Blogger Nullifi3d said...

Market and WoW shouldn't be uttered in the same sentence together, unless you're talking about how shitty it is.

Sorry to burst your bubble, but check this out:

http://www.eve-online.com/features/
"Dynamic player controlled economy"

Screenshots:

http://www.nullifi3d.com/images/eve_market1.jpg

http://www.nullifi3d.com/images/eve_market2.jpg

That's a market. Kthx.

 
At 9:53 PM, January 13, 2009, Blogger Raymond said...

I've noticed that on several items the opportunity for arbitrage is huge. Expert first aid and cooking books sell for ~1g from the venders yet retail for 10g+ on the AH. Is the opportunity cost of going from Orgrimar to Dustwallow to buy a book 9g?

Also I've just started taking an undergraduate research methods class where we are required to write an empirical research paper. Perhaps I should test some of these hypotheses by maybe running a regression with the price of some item (say copper ore) dependent on population, average level, PVE vs PVP etc. I'd appreciate advice as I'm a novice economist (and pretty novice WoW player :P)

 
At 7:51 AM, January 16, 2009, Anonymous Chad Schaefer said...

If I entered class on the first day and was told we were going to learn about economics from a video game, I'd walk out the door.

I'm a gamer. I've been a gamer since the mid-80's, and continue to buy and play on every console and PC to this day. But this is the most ridiculous idea involving gaming I've ever come across.

It's no wonder other countries look down on the American education system.

Gaming is meant for entertainment value. No matter how many try to justify the learning quality in some games, a games' sole purpose is still in entertainment.

I don't know about you, but when I went to college I was there to learn about the real world and gain a better understanding of real life situations. Then I went home and slaughtered mobs in FFXI, because it allowed me to escape from reality for a few measly hours.

Had my economics instructor told me I could play FFXI and learn from that instead of from him, I would've dropped that class in a heart beat.

 
At 10:58 PM, January 24, 2009, Blogger wallstreetcreation said...

This comment has been removed by a blog administrator.

 
At 9:10 PM, January 27, 2009, Anonymous John said...

I thought you would enjoy this:

http://www.tumeroks.com/starcraft-course-opened-for-college-earn-credits/

 
At 10:01 AM, February 04, 2009, Anonymous Anonymous said...

The Funny thing about Wow is that monopolies don't really exist,and furthermore the economy is always at full employment. Even if a level 70 individual were to kill every quest giver within a a large geographical area that "quest giver" or "employer" would come back within only a few minutes. Another problem with wow is that Resources are always abundant and unlimited.

 
At 9:26 PM, March 06, 2009, Blogger look said...

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At 12:26 PM, April 04, 2009, Anonymous world of warcraft gold said...

good read..:)

 
At 6:17 PM, April 27, 2009, Blogger jimhsu said...

Re: EvE

I second the notion that EvE has perhaps the most realistic in-game economy of any modern MMO. You don't see things like IPOs, corporate theft and blackmail, insider trading, etc etc in WoW.

My latter months of playing EvE (I have since quit) was essentially full-time arbitrage and spread trading; placing buy orders in congested trading hubs and accumulating based on support and resistance to unload a few days later. Also, since markets in eve are regional, there are time/space tradeoffs (i.e. people who run missions do not want to fly a few jumps for a cheaper item) that can be exploited. Heck, their charting system uses Donchian channels (find another videogame that does that.)



BTW I am a part time trader in the real markets.

 
At 7:51 AM, May 23, 2009, Anonymous Bryn said...

I stopped playing WoW several years ago, but your course proposal sounds interesting.

Your point about a training market for low level supplies is an interesting one, and can result in some odd market distortions of its own - because many "new" low level characters are backed/funded by existing alts or guilds with substantial financial resources, even these basic supplies (I am thinking of copper bars here) have at times been out of reach of genuine beginning players.

Around the time I wrote my article on vendor arbitrage, I had an unusual experience along these lines - someone contacted me and offered to supply all the cloth and patterns required to level my tailor from level 175 to 250, on the condition that I surrendered the produce to him (nightscape headbands, I think - he disenchanted them) and that I would then provide him with 50% of my Mooncloth output, by mail, for two months. This is a higher level of economic organisation than I've seen anywhere outside of EVE Online.

Your wife's experience with monopolists is also an interesting one. The problem with making threats like this is that in the absence of real knee-cap breaking, it's very hard to make any kind of punitive measure stick. I was invited to cartel on Argent Dawn over the price of Savory Deviate Delight back in 2004 or something, and the only result was my entire guild fishing the oasis for hours on end so we could flood the market with hundreds of automatically listed 1c buy-out auctions.

Good luck with your course!
Bryn.

 
At 11:00 PM, June 06, 2009, Anonymous warcraft priest pvp said...

I agree with Eric.

 
At 2:42 PM, September 22, 2009, Blogger Chuck said...

Yup, you could easily teach a solid course in economics using the WoW economy. The time value of money is made painfully clear. You don't mention that you can have several actors in the economy, one who auctions things, one who mines things, one who picks herbs etc. Comparing the economic benefits of a community of co-operating (on the same account) basis emulates a family to some extent which is not well modeled in existing economic practice.

 
At 7:06 PM, April 25, 2010, Blogger FSeanBickford said...

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At 4:41 PM, June 01, 2011, Blogger Matt McComb said...

Professor Friedman,

I am an MBA student at Hult International Business School in San Francisco. I am also an avid MMO player and have worked in the video game industry, including at Blizzard Entertainment. I'm currently writing a thesis on economics in virtual worlds, examining the problems of current economic design within virtual worlds and (hopefully) how to solve them.

I came across this blog post while I was doing some online research and found it quite interesting. I'm actually talking with a couple of game design schools about teaching jobs after I graduate, and one of the courses I've discussed with them is virtual world economic design.

Would you be interested in corresponding about the subject, or perhaps meeting for a coffee down in San Jose sometime within the next couple of weeks? I'd love to get additional input on the subject and discuss some ideas.

Kind regards,

Matt McComb

 
At 5:51 PM, June 01, 2011, Blogger David Friedman said...

Response to Matt:

Sounds like a fine idea, except for the coffee--I'm not a coffee drinker. Email me to find a convenient time and place.

ddfr@daviddfriedman.com

 
At 11:29 AM, October 10, 2011, Anonymous Christie Layne said...

well I have a professor who did this this semester and I have to say it did not get the warm welcome I expected. Only 3 people out of the 60 -70 in my class had ever played WOW and most have never been into gaming at all so this was a challenge to them. Some students were threatening to drop the class and many did after a couple weeks. These were good students for the most part that did not normally drop classes. Myself, I welcomed the chance to play again, after being too busy to play for the last several years. It is almost midterm and our first WOW assignment is due this week. I'm curious how it will turn out

 

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