Baccarat can offer a fascinating glimpse into real-world economies. For instance, the massively popular game World of Warcraft has an economy that rivals many real-world ones. Several million people “live” in it and some even accumulate real and financial wealth. The border between virtual and real life is increasingly blurry. These societies also have surprisingly familiar problems: they are rife with corruption, fraud and theft. Inflation is rampant. Advanced players offer newbies protection in exchange for cash – the black market is alive and well. In this article, we describe some of the ways these virtual economies can teach us a lot about human decision making, finance and society.
Virtual Economies and Their Impact on Real-World Finances
We argue that economic policymakers can learn a great deal from these experiments. Often, economists prioritize economic efficiency, but forget to consider the social costs that might result from their chosen policies. When those costs are ignored, the results can be perverse: a perfectly efficient system may alienate its users or destroy community spirit. The lessons of virtual economies suggest that the social costs should be taken into account when designing economic institutions and markets.
Lehdonvirta and Castronova propose a tool-kit of good design principles that can help game developers avoid these pitfalls and create economies that, over time, might prove more successful than real-world ones. They argue that, by taking a more holistic approach to game design, the metaverse might become a thriving economy that can tackle real-world problems of unemployment, poverty and environmental degradation.