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Virtual Economic Theory: How MMOs Really Work

November 16, 2010 Article Start Previous Page 2 of 5 Next

What's Gold Worth?

The notion of supply rate becomes even more important when one considers the basis for many MMORPG virtual economies: the gold piece. And yet, that I've made it this far without ever mentioning "gold" should indicate an important point: a game's currency is not actually the most important element in a virtual economy. My opening example of Asheron's Call's mote and shard market should paint that picture fairly clearly.

But more importantly, gold in a game isn't actually currency at all; at least, not a fiat currency in the sense of the money we use in real life. A fiat currency is something that has no intrinsic worth; you can only trade it to other people who are willing to accept it.

However, currency in a game does have intrinsic worth: the NPCs that buy and sell items in exchange for the game's currency set the intrinsic worth of it. If a healing potion costs 100g, then 100g is always worth a healing potion. No matter what happens to the game's player economy, 100g will always buy that same healing potion.

The idea that gold isn't a currency should be even more strongly enforced by the methods in which players acquire gold. In my earlier example, the player spends 10 minutes harvesting, and gets either herbs or ore or gold.

Gold is, in this sense, a harvested resource, gathered from the corpses of monsters or by turning in quests, just like a player would gather any other resource in the game. The value of gold is the same as the value of any other item: it's derived from the opportunity cost in time to acquire it.

This applies to all transactions: even if there's a super-rare sword on the auction house for 20,000 gold, you can determine its value by comparing the time it would cost you to accrue 20,000 gold versus the time it would take you to acquire the super-rare sword.

There are, of course, contingent factors. For one thing, acquiring gold is a very low-risk behavior. Players completing daily quests in World of Warcraft can predict with decent accuracy how much time it takes to do them and how much gold they'll get for their effort. I've often heard things like "Oh, it'll take me six days of grinding dailies to buy epic flying for my alt."

On the other hand, acquiring the sword can be a very high-risk behavior. If it has a very low drop rate, players may try and try and try to get it and never actually get it at all. In the time it takes them to gather 20,000 gold, they might never see the sword at all. Thus, a player's risk-aversion could significantly increase the perceived opportunity cost of a risky item.

Even if it statistically takes the same amount of time to gather 20,000 gold as one would acquire the sword, avoiding risk might actually cause the sword to be worth more than its strict opportunity cost to a risk-averse player. Conversely, a risk-seeking player might prefer the challenge of getting the sword for him- or herself, decreasing the value of the sword below its opportunity cost.

Another contingent factor is money in the pocket. Players regularly gather items and money during the course of their adventure at no opportunity cost. A player may want to complete a quest and, in the process, gets attacked by a hostile monster, which they kill and loot a rare item. Lucky! The opportunity cost of this item was zero: the player never actually intended to obtain this item nor spent any time in acquiring it.

Likewise, players regularly get lots of little bits of money from killing monsters and selling "junk" to vendors, slowly increasing their pocket coin without really putting any specific focused effort into getting money. This pocket money can have a strong influence on purchasing items, especially if players have a large amount of money "burning a hole in their pocket" and stumble across an expensive item on the market to buy.

The opportunity cost -- getting the item versus unloading pocket money -- might (depending on the personality of the player) lean very heavily towards giving up some pocket change for a new toy.

One key consideration with money is that, in most MMOs, it doesn't take up inventory space. There is no penalty to carrying it. Therefore, there is no cost in simply holding it, compared to having to decide which of many items to store in one's inventory. My blog on Gamasutra about Value Maximization goes into further detail about inventory management, but because of its special nature, gold is spared the cost in terms of limited carrying capacity. As a result, players can often amass large fortunes in their pocket without paying any storage costs.

Money In, Money Out

The influence of pocket change is the result of the "MIMO" balance in a game's design. MIMO, or "Money in, Money out", refers to game systems that produce or consume the in-game currency. Using World of Warcraft as an example again, a daily quest produces money (money in) whilst buying epic mount training removes money (money out).

One of the inherent challenges to balancing a virtual economy in an MMORPG is balancing the MIMO to prevent the accumulation of excess currency. Many players mistakenly think that the mere presence of money in a market leads to pocket-change-caused inflation. However, it isn't actually the amount of money itself that leads to this kind of inflation, but rather a problem in the MIMO balance.

A core concept in understanding MIMO is to understand the opportunity cost of gold again. Recall that it might take a player 10 minutes to get 10 gold or five ore? What happens if the player also gets gold while harvesting five ore? This gold has no opportunity cost: the player did not seek to acquire it, but merely got it as a side effect of pursuing their ore-harvesting objective. This gold is "money in". This can have huge repercussions when large quantities of money are generated as part of a non-money-seeking activity.

When World of Warcraft introduced Sunwell Island in the Burning Crusade expansion, Blizzard introduced a series of daily quests that provided players with reputation gains needed to unlock access to the Sunwell Plateau raid zone. Players who were working on gaining access (the opportunity cost in time for gaining reputation) also gained a lot of money from completing the daily quests (zero opportunity cost incidental rewards).

Thus the intentional inflationary effect of daily quests (players now had a way to make more money in less time) had an unintentional further inflationary effect (the extra money from players who were doing dailies not for the money but for the reputation). Money in; but no money out.

MMORPGs often use MIMO as part of their content gating system. If players get, on average, 1000 gold while going from level 1 to 40, but players who "rush past" content end up with less gold, then putting a 1000g content gate at level 40 forces "rushing" players to slow down, harvest more money (possibly by doing quests they skipped) and getting "back in line" with what was intended by the developers.

If you'll forgive the incessant WoW references, vanilla WoW had this sort of content gate for its original level 40 mount riding training, though many did not have enough money to meet the content gate at the time they reached level 40. This sort of "gating" design is very risky because different players treat money in extremely different ways: some hoard it, others spend every last coin.

Unlike direct progress gates (e.g.: experience points, level limits, gear requirements, etc.) money gating leads to unpredictable results. It's also of interesting note in World of Warcraft because the money gates are the only ones that can be done socially: other players can give you money to buy your way past the content gate. All other content gates in WoW are generally ones that a player has to do him- or herself: getting attuned to a raid zone, completing a quest, or gathering bind-on-pickup gear.

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