Analysis on the Virtual Economy


February 8, 2013 by omar373

Edward Castronova’s purpose for his study is to examine how the existence of a virtual economy compares and contrasts to the real world economy. He examines such phenomenon largely through MMORPGs, or Massively Multiplayer Online Roleplaying Games, which have been popularized since the 1990s over several platforms that are mainly Internet based. This genre opens up a virtual realm where it allows the player to engage in lifelike, socialized gameplay. These second lives, as they are sometimes referred to, include many aspects of living in the real world. One major aspect is the existence of an inner-game economy where players can engage in the exchange of virtual currency as well as goods and services. This phenomenon provides an example for economists and analysts to observe player behavior in an environment that can be manipulated to anywhere in a range between modeling real world conditions and creating completely surreal occurrences. In a virtual economy, those who write the game codes are in control of how real people act as consumers within the quasi-reality of the video game, rather than the “invisible hand” of a capitalist economy or the government in a socialist economy.  

            Castronova looks at several situations where economic regulations in the video game contrast those of the real world. One of his major points is that the game creators can regulate the virtual economy without cost. This opens up the game realm to endless possibilities. Despite this, differences arise from the fact that these are video games, which aim to entertain people and create challenges. While in the real world economy the regulators would, in theory, do all that is in their power to maximize the consumption and wellbeing of the people, in a game this would defeat the purpose of a challenge. The administrators would have an incentive to create economic adversity for the sake of having an engaging gaming experience. Another variable through which the virtual world contrasts to the real world is population. Players can simply choose to “deactivate” or “reactivate”, causing the stability of an online population to be absent. This is in contrast to the real world where population change mainly occurs over the course of generations. Outside of the gaming world, the economy isn’t influenced as quickly by population shifts as it may be in the virtual world.

            This article also shows how video games can be used to give perspective on how people operate within the real world by creating an alternate realm for comparison. In economics, an important theme when looking at individual actions is to understand their incentives. This occurs when looking at the economics of the gaming industry, and how game developers try to create incentives for people to continue buying their product buy engaging them in game play. The MMORPG genre has opened up a world of games where people expect some level of reality to manifest itself on the video screen, while at the same time allowing them to act somewhat limitlessly and also giving them the options of completing challenges to keep them involved in organized gameplay to varying degrees.

            Arguably, this video game realm to real world comparison marks a change in how we see the utility of the advent of virtual gaming in the first place. Looking at the birth of video games, it arose around the same time as computer technology advanced in the 1960s and originally was created with the intention of serving public good through some form of military training. From there onwards, simulation has been one everlasting trait that video games have improved upon. Through the observations of this study, it can be seen that video games now allow for the simulation of not only something tangible such as the flying of an airplane or the operation of a machine, but also for the simulation of the intangible such as political and economic systems that govern how masses of people live in day to day situations. It is possible that with this new perspective on the utility of games, one day MMORPG games may be used by chief economists, national banks, and other regulatory agencies to understand real world problems using live human feedback through constant gameplay. Furthermore, using the data that is collected by these virtual economic participants, firms and other private institutions could gain insight in understanding consumer behavior and maximize sales if adapted properly. The applications of a virtual world could one day serve as a model to be studied for the improvement of the real world.

 – Omar Masood

Work Cited


Castronova, Edward. “On Virtual Economies.” The International Journal of        Computer Game Research. 3.2 (2003): n. page. Web. 8 Feb. 2013.             <;.



One thought on “Analysis on the Virtual Economy

  1. aliymahmed says:

    Remarkable! I’ve heard of flight simulation games and warfare simulation games (with tanks), but games with a focus on consumerism is something else! I’d like to know of some examples of these games, but what comes to mind for me are the TCGs that are able to be played on mobile phones. Omar, you bring up a good point that in games that have virtual markets make it harder to acquire your desired product than it is in the real world. For instance, I have a TCG on my phone, and it is extremely hard to acquire specific cards unless you buy card packs through in-game purchases, but even then it is hard to acquire the desired card (unless you hack the game somehow).

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