Video Game Economics

Oct 10, 2012 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Financial Markets, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically, Uncategorized • 135 Views    No Comments

Sometimes a virtual world can show us some economic reality. Here is the story:

There once was a Greek economist who, for many years, happily wrote papers and taught classes, in (he said) his “academic cocoon.” However, as the euro-zone calamity started to unfold, word of his expertise spread. He understood the dynamics of a single multi-nation currency, of balance of payments issues, of unfunded debt. He had the knowledge that would attract national governments, central banks, major universities…

…and video game developers.

This Greek professor, Yanis Varoufakis,  received an email from the president of Valve, the Half-Life games maker, saying, “Here at my company we were 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, when it occurred to me this is ‘Germany and Greece…’ Would you be interested in consulting with us?”

Dr. Varoufakis soon said that the offer was “an economist’s dream-come-true. 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!”

By contrast, in the real world, we calculate the unemployment rate for a labor force of close to 150 million people, with statistics from just 60,000 households. Or, we use econometric models that are based on hypothetical theories and a cascade of statistics that Dr. Varoufakis believes are “hocus pocus” because their bias reflects their creator. He says that the only way to judge macro policy is to actually–not theoretically–rewind history. But we cannot go back to 2009 and live through those years without an $800 billion stimulus or QE1 and 2. We can’t see whether the 1930s economy would have rallied without the New Deal.

So, believing that he could gather economic insight about the real world from observing and manipulating the virtual world, Dr. Varoufakis said yes. In addition, his website says that he currently is a Professor of Economic Theory at the University of Athens and Visiting Professor at the Lyndon B. Johnson Graduate School of Public Affairs at the University of Texas at Austin.

Our bottom line? Whether real or virtual, economies are tough to simulate.

Sources and Resources: Through a slew of blogs ranging from WSJ.com to the Washington Post and Dr. Varoufakis himself, I learned about why video game developers need economists. Here also, is Valve’s help-wanted ad for an economist. Their requisites resemble what the President and Congress look for in a Federal Reserve chairman.

Similar to reality, these graphs are from the Washington Post:

Price Indices From Computer Games

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