That Time a Video Game had an Economy Almost as Strong as Russia

That Time a Video Game had an Economy Almost as Strong as Russia


In late 2001 an economist called Edward Castronova
made tsunami sized waves in the world of economics
when he published a paper claiming that an
isolated place called Norrath had a currency
stronger than that of the Japanese Yen- an
especially bold claim considering Norrath
had less than a million inhabitants, had only
existed for about two years and didn’t exist
physically.
Yes, Norrath was entirely virtual and populated
exclusively by players of the video game EverQuest.
Released in 1999, EverQuest is an immensely
popular and influential massively multiplayer
online role playing gaming (MMORPG).
Set in the magical fantasy world of Narroth
and boasting an impressive (for the time)
near half million subscribers at the apex
of its success, EverQuest came to the attention
of Castronova at first much in the same way
it came to the attention of anyone- he just
thought it sounded like a fun game to play.
However, as he became more familiar with the
game, he noticed some rather fascinating things
about how the virtual economy had developed
within the game.
This all culminated in him publishing on the
Social Science Research Network a humorous
but excellently researched, and ultimately
groundbreaking, paper titled, Virtual Worlds:
A First-Hand Account of Market and Society
on the Cyberian Frontier.
By his own admission, Castronova stated, “I
thought maybe seventy-five people would read
it and that’d be great.”
Instead, it quickly received over 16,000 downloads
(and today is sitting at closer to 50,000).
While this might not seem like much, let’s
remember context here- this was an academic
paper published on an online academic journal.
Needless to say, that number of downloads
made it the most downloaded paper in the history
of the Social Science Research Network, which
at the time featured almost 50,000 academic
papers, including many dozens written by Nobel
laureates.
Why was this paper so fascinating to the world
of economics?
As economist Yanis Varoufakis noted, “Economic
theory has come to a dead end — the last
real breakthroughs were in the 1960s.
But that’s not because we stopped being
clever.
We came up against a hard barrier.
The future is going to be in experimentation
and simulation — and video game communities
give us a chance to do all that.”
What Castronova had stumbled upon was essentially
an economist’s dream- virtual worlds the
researchers could use to analyze in a scientific
manner various concepts in their field using
large data sets and real people populating
those worlds.
Or as Washington Post journalist Brad Plumer
succinctly stated, in virtual worlds, “The
data is richer.
And it’s easier to run economy-wide experiments
in a video game — experiments that, for
obvious reasons, can’t be run on countries.”
In short, economists in academia were intrigued
with Castronova’s paper and its implications
for future research.
So what did Castronova find?
After painstakingly pouring over the available
data surrounding the world of Norrath, he
was shocked to discover that in real world
dollars Norrath had the 77th highest GNP per
capita, placing it squarely between Russia
and Bulgaria at the time.
How was this possible for a virtual world
with only virtual currency?
At the height of EverQuest’s popularity,
sale of in-game items ran rampant and at one
point in time a player could pretty much buy
anything they wanted in-game, regardless of
how rare or powerful it was, so long as they
could flash the cash to make it happen.
Although Sony, who published the game, would
make several attempts to quash this practice,
claiming amongst other things that all of
the items for sale were their intellectual
property, as well as outright banning players
they caught doing this, the sale of in-game
items and avatars became a thriving industry
on sites like Ebay.
In fact, former child actor Brock Pierce (perhaps
best known as a kid for his roles in Mighty
Ducks and First Kid, and as an adult for his
work in crypto currency) even started a surprisingly
successful company, Internet Gaming Entertainment
Ltd (IGE), which dealt in these virtual goods
in exchange for real money.
The company maintained a rather large staff
of low-waged workers who worked in Norrath
and the real world, doing things like meeting
to exchange goods, as well as building up
avatars and acquiring virtual goods for future
sale.
In any event, Castronova analysed over 600
illicit sales outside the realm of Norrath
on sites like Ebay and then simply compared
this to the value of the item in-game in the
principle currency of Norrath- Platinum Pieces.
When he did this, Castronova discovered that
the relative value of a single Platinum Piece
compared to the US Dollar was $0.01072.
While this may not seem all that much, as
Castronova pointed out, at the time, “its
value exceeds that of the Japanese Yen and
the Italian Lira.”
With this value in hand, Castronova was then
able to roughly calculate a number of other
interesting things about the economy of Norrath.
For example, it turned out the average citizen
of Norrath earned around $3.42 per hour (or
about $5 an hour today) when taking into account
the value of the items and in-game currency
they could realistically acquire during normal
play per hour on average.
Combining this with the estimated time extreme
players sunk into the game (according to data
gleaned by Castronova in surveying over three
thousands players), Castronova calculated:
Many users spend upwards of 80 hours per week
in Norrath, hours of time input that are not
unheard of in Earth professions.
In 80 hours, at the average wage, the typical
user generates Norrathian cash and goods worth
$273.60.
In a month, that would be over $1,000, in
a year over $12,000.
The poverty line for a single person in the
United States is $8,794.
Looking at players of every time commitment
level, Castronova determined that, despite
the game being extremely new, the average
player of EverQuest already had over $3,000
worth of sellable goods locked up in the game.
But we’re not done yet because Castronova
was then able to roughly calculate the gross
national product of Norrath based on the value
of the (entirely virtual) goods it produced
in 2001.
His final number?
About $135 million.
While, again, this may not sound like much,
divided amongst the estimated total number
of Norrath denizens, that meant the GNP per
capita of the virtual kingdom was $2,266-
a figure that, as previously mentioned, theoretically
ranked the computerised state the 77th highest
on Earth at the time.
Naturally, this information peaked the interest
of Castronova’s fellow economists, as did
other observations he made about the virtual
world and economy he was studying.
For example, according to Castronova one of
the more curious things he noticed during
his research was that, despite every effort
being made by Sony to give everyone an equal
footing when the game began, financial inequality
was quickly rife amongst the denizens of Norrath.
Additionally Castronova also observed how,
much like in the real world, the wealthiest
players would often hoard their wealth and
use their vast resources to pay poorer characters
to do all of the pointless busy work they
didn’t want to waste time with, in effect
becoming pseudo-employers who kept the lion’s
share of any profits made via the work of
the plebeians to themselves.
Anecdotally, Castronova would say of his own
time in-game as a low level player with no
resources: “My problem is that I am under-equipped.
I have been basically naked, carrying only
a simple club, a caveman in a world of cavaliers.
My poverty is oppressive – no amount of
rat fur is sufficient to buy even a simple
tunic at the ludicrously high prices of the
merchant biots.”
Naturally, as the game evolved, the whole
“initial equality” thing also died off
for some, thanks to those markets where players
who had disposable income in the physical
world could simply buy whatever they wanted
for real money and enter the game vastly more
powerful and capable than a player without
this option.
Since Castronova’s paper, and partially
as a direct result of his work studying virtual
economies, the one time self professed “academic
failure” and “schmo at a state school”
managed to leverage this to level up in real
life- securing a tenured position at Indiana
University Bloomington as a professor of Telecommunication
and Cognitive Science, as well as coming to
be known as the “founder of the field of
virtual economics”.
And as many other virtual worlds with complex
virtual economies have likewise sprung up,
economists and other scientists continue to
study them, as they make great petri dishes
to observe how various variables result in
changes in economy and human behavior.
Going the other way, gaming companies like
Valve have taken to hiring economists to help
them manage their virtual worlds.
As economist Robert Bloomfield notes, “If
you’re creating a game with 100,000 users,
with things that they can buy and sell, you
need an economist just to help you tweak that
system so that it doesn’t spin out of control.”
As for Castronova, he concluded his ground
breaking paper by waxing poetic about the
potential virtual worlds could have with the
application of new technology, stating
The impact on Earth society is hard to overestimate.
With the development of voice technology,
communication in Virtual Worlds will move
from cumbersome chat to telephone-like conversation,
thus greatly enhancing the Virtual World as
a place of social interaction.
Families living thousands of miles apart will
meet every day for a few hours in the evening,
gathering their avatars around the virtual
kitchen table and catching up.
And the day of driving to the store may well
be over.
Earth roads will be empty because, instead
of using them, everyone will be sailing across
the azure heavens on their flying purple horses,
to shimmering virtual Walmarts
in
the sky.

100 thoughts on “That Time a Video Game had an Economy Almost as Strong as Russia”

  1. Thank you Dashlane for making this one possible! Get 10% off with the coupon code "brainfood" here: http://www.dashlane.com/brainfood

  2. There are some inaccuracies with this video. You couldn't "buy anything you wanted" in EverQuest. You could buy some things, either a small selection of tradeable items from bosses if they were sold (such as a certain illusion mask, even finding somebody willing to sell was insanely rare), or pay usually a multi-boxing person to help you get a drop from older expansion content. Sure, you could get things you couldn't otherwise get solo, but the top stuff was almost exclusively reserved for raid guild players, and that was insanely competitive. Top end loot that no mains wanted typically went to alts.

    Source: Played EQ for years on Drinal and ran with a group who sold loot runs on eBay.

  3. Developers banning secondary market people is the same as them saying:
    "everything in our game is worthless and if you say it isn't you're not allowed to play our worthless game"

  4. Hahaha i wonder what WoW or for that matter ark survival evolved would rank WoW had 18 millon players and about 20% of them used real cash to buy in game items. Dont hate people for this tho it works both ways it takes time to make money but work hard in games and you can get 100% pprofit for your time . People any ga e were items can be traded and has a value will eventually be sold for real cash the only sour ones are thos that choose not to join innthis trade or just dont know were to start. Alot of real money can be made and spent in vertuial games

  5. i saw this video on my front page was exited to see it was EQ that this was talking about a fun video and even as a player for 7 years did not know all this

  6. This is how/why the US intelligence was spying on WoW, because the virtual economies became a means to money launder REAL money. These days people don't buy/sell in virtual economies, they buy/sell with real life money via Paypal. They just use video games to link their ads. Want that AOTC achieve in WoW? They spam the game with ads selling it for $20 to $100 a run. In turn, the games get crappier as the barrier is no longer "skill" and "know how", but who pays REAL money.

    Sony even allowed plat and avatar sellers in their game, offering them a blackmarket economy and channel in game (hidden from people, but there if you did a search). EvE does it publicly where pilots can cost hundreds of dollars to buy

    Video gaming is much like Las Vegas and the mob these days (it's no wonder why Activision-Blizzard is heavily trying to push eSports as a new betting medium). With some very dirty players like IGE's Steve Bannon (yes, Trump's Alt-Right idiot) and Brock Pierce heading those ventures.

    I play EQ2/WoW/EvE and stayed completely away from these scammers and "dealers". But the video game business couldn't exist without the "black market" they officially disclaim. Much like bad law enforcement that looks away from crime, if they get a cut in the business mob style.

    All I can say is if you're a parent, watch your kids and credit card(s) statements judiciously. The mess CoD is in with multiple TIERS of microtransactions (well nothing from Activision isn't "micro" we're talking $60 for RNG hopes of getting a PIECE of gear lottery crap), yeah, keep an eye on Johnny and your bank accounts.

  7. You're trying too hard to move your hands when you speak. So much so that it appears artificial and distracts.

  8. I'm a long time player of Path-of-Exile and would love to see (or watch) a similar analysis made on that game's economy but fact is I came to think that this economy is corrupted at its core. Hackers can use farming bots among other tools and the devs claim that they ban those players , but a big Chinese investor that came into the picture last year or so and left me with more suspicions than anything else. Just looking at the cycle of leagues go in and out every three months and how persistent the offers for RMT (real money transactions) remains even at the very start of those temp leagues is a blatant sign of foul play.

  9. When I was little, my dad brought home a game for our ps2 called champions of Norath. He, my two brothers and I all started playing it together and after bringing it to a family get-together, now the extended family was playing it together. That game was a huge bonding experience for my family for YEARS. It just made me happy to hear about Norath again, because it felt for a while like everyone forgot it existed. Doesn't really have anything to do with economics, and the game I'm talking about is probably considered a bastardization of the original MMO by everquest players, but yeah

  10. We shoudn't forget that the price might be artificially inflated because the sale and purchase of buying is not allowed and might risk on a temporary or permanent 'ban'.
    When account are banned, the items and "avatar" are lost.
    I think it's comparable to any illegal item such as drugs, the value is mainly based on it being against the rules.
    Many players who quit the game will never sell the items because it's too much hassle to do it without getting banned. The risk is too high to attempt it.
    It's unallowed nature also lowers the amount of people that actively 'farm' to sell for real money.

  11. Dear Root,

    I will NEVER consider getting insurance through you because I'm tired of your ads interrupting videos that I'm watching. When I'm trying to listen to what someone in a video is saying, the last thing that I want to happen is for him to be interrupted mid sentence for the purpose of force feeding me your stupid fucking ad. I wouldn't single you out, but it's always your ad, so… Fuck you. I hope you read this comment.

  12. Mobile games need an economist to tell them no one is going to buy a 'fancy bush' decoration for 500 gems when 500 gems = $7.99

  13. you should do one on a more recent phenomenon that is runescape and how its the primary source of employment in Venezuela these days

  14. That's what happens when governments arnt involved, economy explodes and everyone becomes rich. End big government

  15. you should do a video on the the large number of people in Venezuela currently playing Runescape and Old School Runescape to make more money than most government jobs in their country.

  16. Closest I could play to playing Everquest was Champions of Norrath on PS2. I still play it on my PS3 today, and LOVE it since I can play 4 player now without a multitap.

  17. Am I the only one that thinks Simon's background music is just like the music played while you're waiting for a match in Hearthstone?

    Please tell me I'm not the only one who hears it.

  18. As much as I wish voice communication could be used in MMOs to have realistic social interactions, but it will just never happen. Forced open voice chat in games like COD Black Ops 2, The Elder Scrolls Online, and worst of all, VRChat, has shown to lead only to cancerous, rowdy shouting and barbed insults. Something about giving people the ability to do this online just doesn't work

  19. I live on the east coast of Canada and my kids live in Calgary about 2500 miles west of here. Two of my 3 kids and I played a game called Eternal Lands. We were all in the same guild and spent many enjoyable hrs working on projects together.

  20. The question is:
    Do virtual world economies mirror Earth economies because of some objective principles like laws of nature

    OR

    Do virtual world economies mirror Earth economies because players behave the way they were taught to behave? What if they simply imitate what they already know, making it look like virtual world economies prove our economical thinking to be somehow natural, inherent to all people?

  21. Considering Eve Online Allows this type of exchange and the cost of a Titan is close to 1200$ and the Eve Isk has real world exchange rate, what is Eve Online's Economy Worth?

  22. There are several major problems with drawing this equivalency.

    1) The inequality in the game was a direct result of already-existing inequalities in the real world. That is true of all games with currency exchanges, especially those that, themselves, sell premium content today. So it cannot be assumed that the inequality in game developed organically within that economy, but rather as a product of existing inequalities.

    2) The value of the goods in real-world money was as high as it was only because a minority of players placed their goods on sale in the real world. Since this meant extremely low supply meeting relatively high demand, those prices were large. If all players tried to convert their 'assets' within the virtual world into real money, the value of items would catastrophically collapse…without anything unique to offer, no one would buy for anything but tiny sums.

    3) The virtual gaming community is not a random sample of the human population and does not operate as the average human would – games can easily became addictions or, at the very least, overvalued in the minds of the most ardent players. Those players often spend more than they have to progress in games even today. That makes them a uniquely poor analogue to all real-world markets but pleasure-seeking pieces – drugs, sex, gambling, sports, entertainment. This is not remotely comparable to things like the service economy, the skilled trades, etc.

    4) This economy was also extremely unstable…far more than the vast majority of real-world economies, specifically because it depended on the viability of gameplay, rather than real-world factors that carry intrinsic value.

  23. Lol. All the shitty jobs we have, going to McDees and and making 7.25/hr flipping burgers then come home and make 3/hr killing monsters.

  24. Many people probably want know if it's possible to live in a poorer country, play games all day, convert the currency and live it large

  25. I had a LOT of fun in Everquest (Evercrack). It was shortly after WoW that I quite. Not because of WoW, but because I realized I wasn't playing a game in EQ, but rather I was looking at a blank open book waiting for the mana to regenerate. It was more of a graphical chat group than it was a game. I got bored and left.

    I did eventually try WoW (after the plague) and stuck with that for a year and a half.

  26. Imagine the first MMO getting it right and all other MMO devs being to stupid or high nosed to implement, what HAS BEEN DONE RIGHT IN THE FIRST PLACE.

  27. Someone needs to make a game where people make an economic system than compete with others to see how many players flock to their system and see if it actually holds up in practice. Other players could do their best to undermine their opponents as well just like IRL. Might save people from some IRL famines, depressions, and revolutions.

  28. I'm gonna start sharing links to your older videos on my "Dr. Jeremy Wraxtiorre" page on Facebook. He's a character from my book on Physics, Economics, Sociology, and Internet Journalism, plus a touch of philosophy.

  29. Level 65 Half Elf Paladin of Numinous Guild. 2nd ranked guild on Tarew Marr for many years until after Planes of Power Expansion and there was a mass exodus. Ahhh, so many memories from endless hours of raiding, farming and leveling.

  30. Thought you'd mention Second Life. People made real world millions. You'd buy store fronts and hire staff just like you would anywhere else. A part time job in Second Life paid better than the same job in RL in many cases. I see in the comments many other examples. It's too bad you kept this so shallow. It would have been more interesting if you had delved deeper and decided to include the other examples as well – expanding on the topic.

  31. It was rather hard for any currency in the 90's to be less worth than Japanese Yen or Italian Lira where a good restaurant would cost you a million 🙂

  32. After playing ff 11 and gtav, i think ive had enough of online economies. Ive had it with working a virtual job for your virtual character. Hey do you game in 2019?. Yes, i do. Wow you work two full time jobs

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