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The Blockly program for the factorial of any number

Actual Economists and Virtual Realities

                             The Economics of Video Games

      Inflation can be a headache for any central banker. But it takes a certain type of economist to know what to do when a belligerent spaceship fleet attacks an interstellar trading post, causing mineral prices to surge across the galaxy.
      Eyjólfur Guðmundsson is just that economist. Working for the Icelandic company CCP Games, he oversees the virtual economy of the massively multiplayer video game Eve Online. Within this world, players build their own spaceships and traverse a galaxy of 7,500 star systems. They buy and sell raw materials, creating their own fluctuating markets. They speculate on commodities. They form trade coalitions and banks.

   

It’s a sprawling economy, with more than 400,000 players participating in its virtual market—more people, in fact, than live in Iceland. Inflation, deflation and even recessions can occur. Which is why, from his office in Reykjavik, Guðmundsson leads a team of eight analysts poring over reams of data to make sure everything in Eve Online is running smoothly. His job bears more than a passing resemblance to that of Ben Bernanke, who oversees the U.S. economy from the Federal Reserve.

“For all intents and purposes, this is an economy that has activity equal to a small country in real life,” Guðmundsson says. “There’s nothing ‘virtual’ about this world.” Nowadays, many massively multiplayer online video games have become so complex that game companies are turning to economists for help. Without oversight, the games’economies can go badly awry—as when a gambling ban triggered a virtual bank run in the online world of Second Life in 2007, with one bank alone costing players $750,000 in real-life money.But there’s a flip side, too. Just as video game designers are in dire need of economic advice, many academic economists are keen on studying video games. A virtual world, after all, allows economists to study concepts that rarely occur in real life, such as full-reserve banking, a popular libertarian alternative to the current banking system that cropped up in Eve Online. 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.

That ability to experiment on a massive scale, academics say, could revolutionize economics. “Economic theory has come to a dead end—the last real breakthroughs were in the 1960s,” says Yanis Varoufakis, a Greek economist recently hired by the video-game company Valve. “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.” At least, that’s the dream. The reality, as always, is more complicated. Game companies are often wary of meddling economists trying to conduct experiments that suck the fun out of their virtual worlds. And some academics scoff at the notion that there’s anything to learn from universes filled with warlocks and starfleets. Game companies and economists may need each other. Now if only they could learn to share the controller.

In June, Varoufakis announced on his blog that he had been hired as an in-house economist by Valve, the maker of the popular HalfLife games. Varoufakis wasn’t an obscure number-cruncher. From his perch at the University of Athens, he had become famous for his trenchant analyses of Greece’s debt woes and the euro crisis. It was clear why Valve was interested. The company oversees a network of games such as Team Fortress 2 that run on its online gaming platform, called Steam. Valve wanted to link different Steam games together so players could trade virtual items. As Gabe Newell, the chief executive of Valve, explained in an e-mail to Varoufakis: “We are discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments.” Whom better to ask, Newell figured, than an expert on the difficulties that Germany and Greece faced after joining the euro? To date, only two companies—CCP and Valve—have gone so far as to hire in-house economists. But several academics who study virtual worlds say they have consulted with game designers. “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,” says Robert Bloomfield, an economist who studies virtual worlds at Cornell’s Johnson School of Management.

Basic rules of thinking like an Economist

                                 What is economy about ?

   Every new subject requires new patterns of thought; every intellectual discipline calls for new ways of thinking about the world. After all, that is what makes it a discipline: a discipline that allows people to think about a subject in some new way. Economics is no exception.
   
In a way, learning an intellectual discipline like economics is similar to learning a new language or being initiated into a club. Economists’ way of thinking allows us to see the economy more sharply and clearly than we could in other ways. (Of course, it can also cause us to miss certain relationships that are hard to quantify or hard to think of as purchases and sales; that is why economics is not the only social science, and we need sociologists, political scientists, historians, psychologists, and anthropologists as well.). We will survey the intellectual landmarks of economists’ system of thought, in order to help you orient yourself in the mental landscape of economics.

                         How People Make Decisions

       Like a household, a society faces many decisions. It must find some way to decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and still others to design computer software. Once society has allocated people (as well as land, buildings, and machines) to various jobs, it must also allocate the goods and services they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Ferrari and who will take the bus.

      There is no mystery to what an economy is. Whether we are talking about the economy of Los Angeles, the United States, or the whole world, an economy is just a group of people dealing with one another as they go about their lives. Because the behavior of an economy reflects the behavior of the individuals who make up the economy, we begin our study of economics with four principles about individual decision making.

   The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as each member of a household cannot get everything she wants, each individual in a society cannot attain the highest standard of living to which she might aspire. 

     Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by an all-powerful dictator but through the combined choices of millions of households and firms. Economists, therefore, study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold. Finally, economists analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising. The study of economics has many facets, but it is unified by several central ideas. In this chapter, we look at Ten Principles of Economics. Don’t worry if you don’t understand them all at first or if you aren’t completely convinced. We explore these ideas more fully in later chapters. The ten principles are introduced here to give you an overview of what economics is all about.