Wanted: Retro Servers

Over the past few years, World of Warcraft has had two major expansions. Each raised the top limit on character level, added new areas to play in and new quests to do—targeted mainly at high level characters, since they were the ones who had already done most of the interesting stuff in the previous version of the game.

This raised a problem for a new player or a player with a new character. Before getting to the fun new stuff he had to spend a lot of time "leveling" his character to get him up to the necessary level. To solve that problem, the expansion modified the existing material, typically by making everything easier, reducing the cost in time and effort of getting a new character up to a reasonably high level.

The downside of that change was to lower the quality of the lower level material. Quests that used to provide an interesting and enjoyable challenge were now only a test of whether you had half an hour free to do them. Some players responded by persuading, or paying, higher level characters to walk their low level characters through the quest, cutting it from half an hour to fifteen minutes—and, incidentally, eliminating any point to doing the quest other than as a way of leveling the character.

Not everyone was happy with the changes; some players miss the challenges of the earlier versions. The obvious solution is for Blizzard to provide, in addition to its regular servers running the current version of the game, a few retro servers. A classic server would run the game as it existed prior to the first upgrade, a Burning Crusade server the game as it existed prior to the second upgrade. A player who wanted the fun of working through the early quests could create a character on one of the retro servers, a player who preferred the later could have a character there, and one who enjoyed both could have characters on both sorts of servers. A character from a retro server could, perhaps when he reached the maximum level, transfer to a less retro one. Transfers in the other direction would presumably not be permitted, since the new material and higher levels from the current version of the game would not fit well into the early versions.

Is anyone from Blizzard reading this post?

My Recent Lectures

This year I have been recording my public lectures—when I remember—and webbing them. So if you want something to listen to while driving, or in the bath, feel free.

Alternatively, you could listen to the podcasts of my novel.

The Ambiguity of "Utility"

The term plays an important role in both philosophy and economics. In philosophy, it is associated with Jeremy Bentham and utilitarianism; in that context utility means, roughly, happiness. In Bentham's view, one ought to act so as to maximize the total of human utility, misleadingly described as "the greatest good for the greatest number."

To an economist, on the other hand, your utility function describes not how you should act but how you will act. "The utility to me of consuming an apple is greater than that of consuming an orange" means that, given the choice, I will choose the former over the latter.

We expect people to choose what makes them happy (cynics and psychologists are welcome to leave the conversation at this point, if they feel left out). Hence we would expect at least a close correlation between utility in the economist's sense and utility in the philosopher's sense. That matters, because one of the things economists do, when they are not making a point of being objective, value-free scientists, is to draw conclusions about what people ought to do—for instance, that they ought to abolish tariffs and price controls. Those conclusions frequently depend on the assumption, stated or unstated, that maximizing utility in the economist's sense will also maximize it in the philosopher's sense. That point was probably clearer a little over a century ago when the economic arguments were being made by an economist, Alfred Marshall, who was a utilitarian and not afraid to make explicit the utilitarian foundations of his economic conclusions.

The concept of utility is, however, ambiguous in other and subtler ways. Imagine, for instance, that you are going to die six months from now. Is your utility greater if you have several months advanced warning, as cancer patients often do, or if your death comes as a complete surprise?

Spending several months knowing that you are about to die would be, for most of us, a very unpleasant experience. If utility is another word for happiness, imagined as a characteristic of what is going on inside your head, the second alternative is almost certainly preferable to the first.

But happiness, in that sense, is not all that matters to people. If one could somehow choose in advance whether, when and if you were in the situation described, it would be the first alternative or the second, many of us would choose the first. Many of us, after all, have things we would like to get done before dying—things to be said to children, wife, friends, perhaps enemies as well. Projects to be completed whose completion matters, if only to our sense of having lived a life worth living. Arrangements to be made for the future of those dear to us. A close friend, not all that long ago, spent a good deal of his last few months reducing to something more like order his crowded and cluttered house for the benefit of his wife and daughters.

For a different slant on the same problem, consider the experience machine, as hypothesized by Robert Nozick—or the real world equivalent in which I spend a good many hours a week, now that virtual reality is really here. Nozick's version provides you with the illusion of a life—the entire rest of your life, stretched out over the length of time it would actually occupy. The proprietor has somehow determined the life you are going to live and believably guarantees you a modest improvement, an illusory life in which things turn out marginally better, in a variety of dimensions, than they would have in the real thing. Assuming you believe him, do you accept the offer?

If the economist's utility and the philosopher's are the same, if choice is entirely about happiness, and if happiness is really a state of mind, then the answer is obviously "yes." For me and, I suspect, many other people, it is just as obviously "no." I don't merely want the illusion of accomplishing things, I want the reality.

Which is one reason why I don't spend all of my life in World of Warcraft.

Arbitrage, Comparative Advantage, and World of Warcraft

Characters in World of Warcraft are in one of two factions, Horde or Alliance. The game is designed to make communication and trade difficult or impossible between characters of different factions.

There is, however, a loophole—the neutral auction house. Goods can be put up by someone in one faction, bought by someone in the other. Two players can cheaply transfer goods between a horde character of one player and an alliance character of the other by offering the goods at a negligible buy-out price (the auction house charges a commission based on the price), with the timing such that as soon as one puts the goods up the other buys them. Ideally, it's done at four A.M., when nobody is likely to be watching the auction house for good deals.

My wife, who has characters in both factions (I don't), has observed that the prices of many goods are higher, at least on our server, on the Horde auction house than on the Alliance auction house. This suggests, to an economist, an obvious question. Given the loophole provided by the neutral auction house, why don't players engage in arbitrage? Buy goods Alliance side, transfer to Horde side, sell them. Doing that would drive up prices on one side, drive down prices on the other, resulting in roughly equal prices for both factions.

The answer is that although the neutral auction house provides an inexpensive way of getting goods from one side to the other, it does not provide an inexpensive way of getting money from one side to the other. Horde gold and Alliance gold are separate currencies; there is no mechanism that lets you inexpensively convert one into the other. It is no more surprising that prices Horde side in Horde gold are higher than prices Alliance side in Alliance gold than it is that prices in the U.S. in dollars are higher than prices in the U.K. in pounds.

Higher prices on one side do not, by themselves, provide an opportunity for a profitable exchange. What does provide such an opportunity is a difference in relative prices. If some goods are considerably more expensive on one side and others on the other, or even if some goods are considerably more expensive on one side and others about the same price, or even if some are much more expensive Horde side and some slightly more expensive Horde side, then trading goods for goods through the neutral auction house does provide the opportunity for profit—a fact that my wife and daughter long ago discovered and demonstrated.

A player who understands this, who sees that in order to profit from trade you need to exchange something relatively more expensive Horde side for something relatively more expensive Alliance side, has gone a long way towards intuiting the principle of comparative advantage and so towards seeing that most of what he reads about trade deficits and associated problems is nonsense. It makes no more sense to say "China can produce everything cheaper than the U.S., so U.S. producers can't compete" than it would to say "everything is cheaper alliance side, so how can Horde crafters compete?"

Putting it in terms of two different currencies oversimplifies the situation a little. There are at least two ways in which it is possible to transfer gold from one side to the other—at a cost. One is to use the neutral auction house, buying goods from your trading partner at an inflated price and paying the auction house's 15% commission. The other is to shift a character from one faction to another, for which Blizzard, when it permits it, charges $25. The character takes with him his possessions, including his gold. There is, however, a limit—even a top level character cannot bring more than 20,000 gold with him.

Suppose prices are 40% higher Horde side, which seems at least roughly the case for some goods on our server (Feathermoon). You buy 15,000 gold worth of goods from the Alliance side auction house, smuggle them across to the character of a Horde side friend through the neutral auction house, sell them for 21,000 gold, of which you get 20,000, with the extra going as a commission to the Horde auction house. One of you then gets a character transfer from Horde to Alliance, taking with him the 20,000 gold.

On net, you have turned 15,000 Alliance side gold into 20,000 Alliance side gold, at a cost of $25 plus a good deal of (hopefully entertaining) time and effort. The current gray market exchange rate of WoW gold for dollars makes one gold equal to about .7 cents, judging by ads spammed on my server. You have made 5,000 gold, worth about $35, at a cost of $25. Not a very profitable transaction—you would be better off using the neutral auction house, which would let you convert 20,000 Horde side gold into 17,000 Alliance side, paying 15% to the goblins in gold but leaving you with a clear profit of 2000 gold, worth about $14.

All of which suggests why arbitrage does not wipe out the Horde/Alliance price difference.

I looked for realspace equivalents to moving character and gold from one faction to the other and found one. When Germany was reunified, the government decided—in my view foolishly—to treat East German marks as equivalent to West German marks, despite the fact that, prior to that, one West German mark exchanged for substantially more than one East German mark. An enterprising German who correctly predicted that decision could have bought goods in West Germany, smuggled them into East Germany and sold them—no doubt at some risk, but I do not know how great a risk during the period just before unification—and then turned his East German money back into West German money at one to one when Germany unified. I do not know if anyone actually did so or not.

Some time back, I suggested that WoW had potential for teaching economics. This post is an attempt to support that claim.

Plumbing and indirect causation

In both my price theory textbook (webbed) and Hidden Order, I point out that one cannot safely assume that changing one thing in a system leaves everything else unchanged; the context there is the effect of changing one element in a transaction, such as the price, the terms the good is sold at, or the quality of the good, on the other elements. In order to figure out what will happen, you need to understand the causal links. My four examples can be found in Chapter 2, under the subtitle "Four Wrong Answers."

I recently encountered another example of the same principle, in a rather different context. Our shower had been persistently dripping. After the tenth time my wife reminded me of the problem, I decided to do something about it. My conjecture was that the valve needed to be replaced, adjusted, or cleaned out, so I attempted to disassemble the mechanism to get at the valve.

I was unsuccessful in my attempt, but managed, in the process, to fix not only that problem, without knowing I was doing it, but two others as well.

How did I work that miracle? I succeeded in disassembling the shower head,and discovered that its filter was clogged. Cleaning that out was easy. I reassembled it, making a mental note that we still had to do something about the dripping. Had I thought more about it, I would have made a further mental note that while doing so, perhaps by hiring a plumber, we might also try to do something about the low water pressure and how long it took the shower to heat up.

If I had, I would have been wrong—because I had just fixed all three problems. With the filter cleaned, the water could get through the shower head, so the low water pressure problem disappeared. As I should have expected, but didn't, the problem of heating up the water disappeared too. With the water free to go through the pipe and shower head much faster than before, it took much less time to empty out the cold water in the hot water pipe, so instead of waiting for a minute or two to start taking a shower, it now took only ten or fifteen seconds.

The dripping stopped too. I conclude that it wasn't a problem with the valve at all. Presumably, the stopped up filter meant that the shower head filled up with water, and that was what was dripping.

A nice lesson in interconnected causation.

I had thought of using this as a lead-in to a discussion of what might go wrong with current health care reform, due to the interrelated causation of that much more complicated system, but I think I will leave that to a later post.

The Motorola Droid

Friday I got a chance to play with the new Android phone at a local T-mobile store. For the most part, I like it. The one disappointment was the keyboard, which does not seem any better than the one on my G1. On the other hand, the D-pad on the Droid seems to work much better than the G1's tiny scroll ball.

I asked about tethering and was told that it would cost an extra $15/month. When I got home and looked for more information on the web, I got an unpleasant surprise. First, and less important, it's $30/month—less important because you can turn the service on and off, so pay for it only on days when you plan to use it, which for me would come to less than two months a year.

The serious problem is that the tethering option is to become available "early next year."

I could, of course, use third party software to tether without paying anything extra, as I currently do on my G1. When I asked T-Mobile's online technical support whether that was permitted, I was told that while they would not provide any support for tethering they didn't object to my doing it. Verizon, which seems to have a clearer idea than T-Mobile does of what tethering is, quite clearly and explicitly forbids it if you are not paying them for the privilege, something I confirmed over the phone with a (very helpful and well informed) representative.

So if I switch to Verizon now, I don't get to tether during trips over the next few months and can't be sure of being able to tether during my month long summer trip; in my experience, projected dates for high tech products and services not yet out mostly come down to "real soon now."

On the other hand, it does look like a very nice phone.

An Android Glitch

On the whole, I'm reasonably happy with the Android OS, but there is one problem I have observed in two unrelated applications and so suspect is coming from the operating system.

One of the applications is DocsToGo, which provides, among other things, a word processor that can read and write MS Word documents. I call up a document, perhaps edit it a bit, then switch to doing other things with the phone. Eventually I go back—and get a message telling me that the program was shut down improperly and asking if I want to retrieve the document I was working on.

The other application is Divide and Conquer, a mildly entertaining game. I get to level seven, switch to doing something else with the phone. Eventually I go back—and discover that I am back at the beginning of the game.

I suspect I know what is happening. Android only keeps a small number of applications open at once. After I switch from one program and run several others, the first gets dropped—forcibly shut down. My guess is that the process doesn't involve actually waking up the program and telling it that it is about to be shut down, so there is no way the program can respond by saving its present state. From the standpoint of DocsToGo, it is as if the computer crashed while it was suspended.

Perhaps someone out there who knows more than I do about the Android internals can tell me if this guess is right, and if there is some way of programming around the problem. Also whether the problem still exists on Android 2.0.

Trust Online: A World of Warcraft Anecdote

In World of Warcraft, some characters are, among other things, crafters, can produce useful objects such as pieces of armor that they or others can wear. To do so requires some level of skill, obtained by in-game activities, mostly crafting, and ingredients ("mats" for "materials"). At a high level, the required mats are very expensive in in-game money and the product is better—provides a greater improvement to the player wearing it—than most of what players can get in other ways.

A common arrangement is for the player who wants something made to provide the craftsman with the required mats plus a tip, an additional payment in in-game currency. The crafter makes the item and gives it back to his customer. The mechanics of exchanging goods involve each player showing what he is giving the other; the exchange happens when both approve. For ordinary trade, that provides automatic enforcement; if you don't put up what you offered in exchange for what I am offering, I don't click the relevant button and the trade does not happen. If, however, I hand over the necessary materials to a craftsman in order that he can make me something, there is nothing to keep him from walking off with them without giving me anything in exchange.

What started me thinking about this problem was my wife's account of a recent transaction . Her character is, among other things, a high level blacksmith with the recipe for a very high level piece of armor, one whose materials cost about 6000 gold. At current exchange rates—there is an active market trading WoW gold and other virtual goods for money, although Blizzard, the company that runs the game, tries to discourage the practice—that comes to forty or fifty dollars.

Someone looking for a crafter to make that item posted a query. I noticed it and referred him to my wife's character. He gave her the necessary materials plus some additional gold, she crafted his armor and gave it back to him. A satisfactory transaction for both parties.

So far as we know, she was a stranger to him. Why did he trust her? How did he know she wouldn't simply walk off with his materials, perhaps use them to make the same piece of armor for herself?

Part of the answer is that in order to be a high level crafter one must be a high level character, which normally means having spent hundreds or thousands of hours fighting monsters, going on quests, practicing one's craft. My wife's blacksmith is level 80, the highest level currently available in the game. If she cheated a customer, she risked a permanent black mark on her reputation. A single WoW server has a population in (I think) the tens of thousands, large enough to dilute but not eliminate reputational problems. I suspect that if the same transaction could be done by someone who had just created a new character and played him for a few hours, the level of trust would be much lower. The mechanism is the same one that explains why banks favor expensive buildings faced with marble and provides one explanation of why companies engage in expensive advertising campaigns—in each case, paying a sunk cost to make it clear to customers that it would be expensive for the firm to take their money and run.

There are possible substitutes for trust, but they are costly. The customer could, for example, offer to trade 6000 gold worth of materials for 6000 gold in one exchange, then give the gold back, along with the additional payment, in exchange for the armor. Doing it that way, however, would require the blacksmith to have that amount of in-game cash free for the purpose. In this case, at least, she didn't; she has not yet made the armor for herself because she cannot yet afford to do so. A customer who sets that requirement substantially reduces the number of potential transactions. That would be a serious problem for very high end crafting, where only a few crafters will have the necessary recipe. The customer also risks offending the person he wants to trade with by making his distrust obvious.

On one occasion, my wife noticed someone posting in search of a crafter with an additional requirement: "must be a member of a reputable guild." That is a way of improving the reputational mechanism, since guilds, in-game groups of characters who do things together, also have reputations. I am reminded of Adam Smith's argument in favor of a diversity of small religious groups—that they have an incentive to make sure their members behave well in order to keep up the group's reputation. But in World of Warcraft the practice is uncommon; my wife only remembers seeing one such post, and other people reacted negatively to it.

Trust mechanisms are not perfect—people do sometimes cheat. But I found it interesting that they work well enough so that the sort of transaction my wife's character engaged in, for an amount very large in in-game terms and significant even in dollar terms, is not uncommon.

Interesting Electoral Doings in Northern New York

A Usenet post earlier this evening called my attention to an interesting congressional race in New York's 23rd district. The incumbent congressman in a solidly Republican district resigned to become secretary of the army. The Republican party nominated Dede Scozzafava, a relatively left wing candidate, at least by Republican standards. Conservative Republicans objected, and threw their support to Doug Hoffman, the candidate of New York's Conservative party. Saturday, Scozzafava responded to the loss of Republican support by withdrawing from the race and throwing her support to Bill Owens, the Democratic candidate. For a while the race between the Democrat and the Conservative was too close to call, but it now looks as though the Democrat has won.

What I find interesting is not the question of who is going to represent the district but of what the effect will be on Republican politics. The left wing of the Republican party will surely use it to argue that conservatives, by refusing to support centrist candidates, are destroying the party—and it seems like a reasonable argument.

But politics is not entirely about reasonable arguments. The candidate of one party is not supposed to throw her support to the candidate of the other, however much she prefers his policies to those of his opponent. Seen in a certain light, doing so makes her a traitor—not to the nation but to the party, although party loyalists may not draw such fine distinctions. I conjecture that the Republican right will try to use the incident to portray the Republican left as untrustworthy villains not deserving of a voice in party affairs.

Two further points occur to me. The first is that Scozzafava, by withdrawing from the race, may actually have helped, not hurt, Hoffman, since in a three way election the two of them would have split the Republican vote. The second is to wonder what the effects would have been, again on intraparty politics, if Hoffman had won. Conservatives could have offered it as evidence that they are the real strength of the Republican party—although not very good evidence, given that the 23rd is apparently an unusually conservative district. On the other hand, treachery that fails has less of a bite, rhetorically speaking, than treachery that succeeds, so that half of their argument might actually have been weakened by victory.

Heinlein, somewhere in Double Star, one of his better if less well known novels, has a character comment that politics is ugly in a variety of (named) ways—but it's the only game worth playing for grown ups. I can see his point.

Controlling Corporations: Stockholders vs Stakeholders

In theory, private corporations are run for the benefit of their stockholders. Insofar as the theory is enforced in practice, it is through two different mechanisms. One is the fiduciary obligation of corporate directors, the fact that they are legally obliged to run the firm in the interest of its stockholders. How much effect that obligation has is not clear, given the obvious difficulties with having a court second guess the decisions of the firm. The second and more important mechanism is the fact that the board of directors, which has the power to hire and fire management, is itself elected by a vote of the stockholders. If holders of a majority of the shares are unhappy with how the corporation is being run, they can replace the existing board, and so the existing management, with people who will run it more nearly as they wish.

This mechanism, like democratic voting in the political arena, faces an obvious problem; the holder of a share of stock, like an individual voter, knows that his vote is very unlikely to change the outcome and so has little incentive to spend time and energy judging how well the firm is being run in order to exercise his voting power. But votes in the corporate context, unlike votes in the political context, are transferable; each is attached to a share of stock, and shares can be bought and sold. If a corporation is doing a sufficiently bad job of maximizing stockholder value, someone with the necessary assets and expertise can buy up lots of shares at a price reflecting the current performance of the corporation. Since owning lots of shares gives you lots of votes, he can then, perhaps in alliance with other large shareholders, vote out the board, replace management and, when it becomes clear to others that the firm is now doing better for its stockholders, sell his shares at a higher price and go looking for another badly run firm to buy stock in. Takeover bids generally get a bad press, possibly due to the efforts of incumbent managers who would prefer not to be replaced, but they provide people running corporations with an incentive not to deviate too far from doing what, in theory, they are supposed to do.

Some people—including a colleague of mine whose recent work inspired this essay—argue that the theory itself is wrong. Decisions made by a corporation affect not only the stockholders but other people as well, most obviously its customers and employees. Why not alter the legal rules in ways designed to give all "stakeholders," all people affected by the corporation's decisions, a voice—either by altering the legal rules to broaden the fiduciary obligation of directors or by changing the rules on how directors are chosen to give (at least) customers and employees some votes as well?

There are a number of problems with the argument; in this post I will focus on one of them.

Corporations are constrained in at least three different ways. Two of them are the legal obligations of the directors and the mechanisms for electing them. The third constraint is the market on which a corporation sells its outputs and buys its inputs. A customer who finds that the corporation is not serving his interests, that its products are more expensive or less desirable than those offered by competitors, does not have to intervene in the internal affairs of the corporation in order to solve the problem. He can simply stop buying what the corporation is selling. An employee who finds that the corporation is offering less money for a less attractive job than alternative employers can quit. Since the corporation requires customers to provide the money with which it pays dividends to its stockholders and salaries and bonuses to its management, and requires employees to produce the goods and services that it sells to those customers, it has a direct and immediate incentive to produce what customers want to buy and provide employment terms that employees are willing to accept.

Like most mechanisms, this one is imperfect. Customers are not perfectly informed about what they are getting or the alternatives, and some customers for some goods and services are to some degree locked in by previous choices. Having spent time and effort learning to use the hardware and software on which I am writing this, I would be willing to switch only if the quality went down quite a lot or the price up quite a lot, so the firms providing the hardware and software have some ability to benefit themselves at my expense without losing my business. Having accepted my current job, there would be significant costs to shifting to another—costs of learning my way around a different university, perhaps of moving to a different location. Hence my employer as well has some ability to benefit itself at my expense.

But my situation as customer and employee is very much better in this respect than my situation as a stockholder. It is true that, as a stockholder, I have the option of selling my shares of stock, which at first glance looks rather like my option as a consumer of not buying a product or as a worker of quitting a job. But the apparent similarity is an illusion.

If I choose not to spend twenty thousand dollars buying a car from Ford, Ford has one more unsold car and twenty thousand dollars less money. If I choose to sell twenty thousand dollars of Ford stock, on the other hand, the money I get is not coming at Ford's expense. Another investor has paid me the money and now owns the stock, leaving Ford itself unaffected. From the standpoint of the firm's incentives, it is as if, every time a customer wished to stop buying from a store, he was required to first find a new customer willing to take his place, or as if an employee could only quit if he provided a replacement willing to do the same job at the same pay.

The stockholder's view of the value of the stock directly affects the firm only if the firm wishes to raise capital by selling a new issue of stock. So far as existing stock is concerned, the shareholder is locked in, even if the fact is not immediately obvious. If the firm is being run in a way that fails to maximize stockholder value, he cannot escape that cost by selling his share, since the price he can sell it for will reflect the reduction in future profits and dividends, insofar as it can be estimated by other stockholders.

It follows that stockholders, unlike customers and employees, receive no direct protection from the market on which they deal with the firm. As a customer of Apple, I am to some limited degree locked in; I can switch to hardware and software from another firm, but only at a significant cost. The same is true of my situation as an employee of Santa Clara University. In both cases, I have born what are now sunk costs as a result of my initial decision to buy a product or accept a job. But as a stockholder in Apple, I am entirely locked in; all of my cost is sunk. If Steve Jobs announces tomorrow that he plans to run Apple entirely for the benefit of its employees and customers, never paying another dividend, the fact that I can respond by selling my stock provides me no protection.

It follows that the stockholder is dependent, very much more than the other stakeholders, on other mechanisms for controlling a firm to make it act in his interest. That is a strong argument in favor of the current mechanism for corporate control and the current legal rules defining the fiduciary obligation of the directors.

Indeed, it is an argument for more than that. It is an argument for strengthening stockholder control in order to provide more protection to the most vulnerable party in the network of relationships that makes up a corporation. One way of doing so would be by removing current legal barriers that make takeover bids more difficult, and so protect managers and directors from the consequences of serving their own interests at the expense of the stockholders whose interests they are supposed to be serving.