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Virtual Economies are Making Their Mark in the Real World

As well as providing a source of entertainment for millions around the world, video games are helping to teach the world’s leading thinkers about the real-life money crisis we all face.

With their huge subscriber bases paying real money to be part of the action, MMO games like World of Warcraft have been the subject of theoretical debates since their emergence at the turn of the millennium.

However, while economics experts have been known to work with video game developers to exercise their expertise on a virtual economy (such as CCP’s hiring of Dr. Eyjólfur Guðmundsson to oversee the burgeoning in-game growth of EVE Online), the expert then moving on to have a hand in real-life financial affairs is almost unprecedented.

And yet this is exactly what happened when Yanis Varoufakis was appointed Greek Finance Minister in January 2015. His background? Hats – and virtual ones at that.

One of Valve’s biggest hits is multiplayer online shooter Team Fortress 2, a game whose standout feature allows players to acquire vast collections of hats – purely for cosmetic purposes.

When they first approached the Greek economist in October 2011, Varoufakis had already made a name for himself as an economics professor in Sydney, as well as co-authoring several important books. When Greece began experiencing turbulent financial times in the mid-2000s, he found his opinion was suddenly in particular demand.

As he wrote in his introductory blog post at Valve, his playful confession that he wasn’t much of a gamer did little to dampen his enthusiasm for what they were trying to do with their games – namely, to link up virtual economies through their Steam platform.

“[W]hat they were describing, the digital community they had facilitated into existence, was an economist’s dream-come-true,” he wrote. “Think of it: An economy where every action leaves a digital trail, every transaction is recorded; indeed, an economy where we do not need statistics since we have all the data!”

Varoufakis saw the role of economist-in-residence at Valve Corporation as a great opportunity to stop guessing what would happen under certain fiscal conditions – as even leading economists do due to an incomplete picture of the situation – and instead begin experimenting with a full data set created by the players.

Employing a world expert in game theory to work on a different kind of game theory is rather typical of the Seattle-based company; known for its flatland hierarchy and quirky founder Gabe Newell, who’s as comfortable in customer support as he is hiring leading business minds to work on his video games.

Elsewhere, other economists have worked with MMOs to try and dictate their value in the real world. A post by QuickQuid summarises the work of Edward Castronova on early MMO EverQuest – he estimated that the in-game country would rank higher than India by GNP – as well as the massive perceived values of WoW avatars sold for real cash on eBay.

At Valve, Varoufakis continued in this vein, helping to predict user behaviour, making sure exchange rates tallied up and examining trade deficits. Newell himself reportedly compared it to “Germany and Greece” when initially recruiting Varoufakis, and the new Greek Finance Minister appears to agree.

“[Steam could be] a kind of eurozone for video game social economies.”

Should this metaphor turn out to be true, Varoufakis has plenty of the knowledge he’ll need in his senior governmental position as he continues to negotiate with the rest of Europe on getting Greece the best deal possible in these trying times.

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