Game Economics Defined
The purpose of this paper is to explain the following:
What classical economies and economists are
What game economies and economists are
Why the two are different and potentially incompatible
Why today's “Game economists” (as defined by industry) are not actually game economists
Why this all matters to industry
In 1775 a brilliant and long lived mind collected all that he had learned over the course of advising British kings and his life's work became the foundational rules for the modern field of Economics. That tome was titled Wealth of Nations. His work was so valuable that it became the framework for how almost all the nations of the modern world are organized.
Of course the world changes over time and so the field of economics was developed to train future economists who would be able to tinker with the details to keep nations running at their peak. But what Adam was describing was an orderly system for creating and maintaining an asymmetrical distribution of power and wealth. Back then we might call this feudalism. What made his tome so powerful and useful was the brutal honesty with which he described this system for distributing labor and other resources and optimizing productivity. His writing is so brutally honest (he describes, without blinking, the process of optimizing labor supply by starving children to cause them to perish while preserving the productive adults) that I can't imagine it being used unedited as source material in any undergraduate economics program.
Over time the world changed and feudalism gave way to corporate oligarchies as the latter was a more efficient system of power distribution and productivity. Our ability to maintain asymmetrical distribution of power and wealth has improved remarkably thanks to advances in classical economics. There have been some economists that have “gone rogue” and tried to create systems that were more “fair”. The result is always a lot of shouting and dying and a redistribution of power and wealth until a new asymmetrical balance is established.
I am in no way attempting to make a political statement or take any sort of side in what happens in “real space” economics. I was born a serf and will die a serf. I serve the system knowingly and willingly. “Fairness” has been shown to improve productivity and health, but any optimizations in the system must be incremental in order for them to be successfully adopted.
Adam Smith treated humans as organic labor supply units and, to a lesser extent, consumers. But Adam didn't have access to modern sciences that explained how humans produce output or what they need to consume to operate optimally. Humans in his time lived to an average age of 35, making his age at death of 67 all the more remarkable. Most people had little or no education and if you ran low on workers it was pretty cheap to make more. Thus to Adam the care and feeding of his organic labor supply units received only the most cursory of discussion. It really was a non issue.
In 2018 I defined the two Core Consumer Needs (for games) as Power and Connectedness. This is because feelings of disconnection and powerlessness are side effects of the asymmetrical power distribution that classical economics create. The reasons for the disconnection are explained in my “I'm Not Addicted, I'm Connected!”. The powerlessness is a more intentional effect but disconnection is required to maintain it.
This wouldn't be a problem in classical economics except that we are putting our people under such high stress that they are starting to malfunction. In 2018 in the USA 90% of our productivity (not wealth) is created by 10% of the population. It isn't hard to imagine that as automation technologies advance, that split will become 1%/99% with robots doing almost everything that was done in Adam's time. As all but the most specialized humans become increasingly obsolete, they will experience ever increasing levels of mental and physical disease related to self-perception.
People need a space they can go to to “recharge”. The solution is, essentially, a modern day Coliseum. We can create New Realities where people feel Empowered and Connected. Game economies are the “social glue” rule sets that govern how players can interact in these NR's. Game economies can further be developed to generate revenue for their creators/administrators, or even labor output that affects real space as described in Third Tier of Game Development (2010).
Definition: The primary role of Game Economics is the design, maintenance, and protection of rules and systems governing the interactions and interdependencies that promote sensations of power and connectedness for participants in New Realities. The secondary role is the creation of methods that translate NR participation into “real space” currency or labor output.
A game economist, by inference, is someone that knows how to perform those duties.
When my team at UnknownPlayer defended Funcom's Anarchy Online and Mythic Entertainment's Dark Ages of Camelot against economic attack by Black Snow Interactive in 2001, we used active counter measures. This included publishing the home addresses and phone numbers of all their members. But soon IGE organized “gold farmers” to conduct economic raids on all known massively multiplayer worlds (early NR's). Blizzard's World of Warcraft was especially hard hit.
The result of such attacks is that the currency, resources, and items in the game economy become devalued and eventually worthless. The developer can try to buy time by adding new content but that new content only holds its value briefly. Seeking solutions, Blizzard was approached by various groups claiming they could solve the problem using automated active counter measures. All of these (expensive) ventures failed because the gold farmers looked too similar to hardcore players and false positives resulted in the banning of some of the most dedicated (and vocal) participants.
In theory it might have been possible to redesign these economies to passively eliminate economic attacks without disrupting normal game play. The problem was that no one understood how or why these economies worked well enough to figure that out. All the studio heads I talked to said it was impossible but I disagreed. In 2005 I stopped all design work in the industry and focused on this solution, hoping it could be done in one year. The good news is that it wasn't impossible, but the bad news is it took me 4.5 years. By then investors had lost so much money on these early NR's that the money for new development had dried up. Further, when Dr. Mike Zyda authenticated my work and attempted to alert major developers, their points of contact just did not understand what game economics was or how it could help them. Through 2017 that situation has not changed.
Classical Economics in NR
There have been some notable attempts to apply classical economics to NR development by tapping PhD level classical economists. The most obvious and successful example would be CCP's EVE Online. Despite some difficulties with UK speculators trying to attack the early game economy , I ended up being the richest player in the early EVE economy. While I was working with CCP to close critical vulnerabilities in their design in 2003 I had ~5000 players working for me as I began building some of the first battleships in the game.
None of those players knew all their resources were being sold to me, there was no opportunity for Connection in the game design. Early attempts by players to cooperate were foiled by economic hackers who raided and emptied Corporate inventories. The ability of powerful players to exercise fiat power over weaker players and take anything they want from them (a core tenant of classical economics) in the EVE design actually worked pretty well to foil gold farmers but also made it very difficult for new players to enjoy the game.
The EVE Online game economy was designed by a classical economist to mirror the real world classical economy. The game play afforded players merit-based opportunities for power acquisition they likely would never experience in their default reality, but the obstacles to Connection were also carried over. While initially it did meet the interdependency requirement, as the lower economy flooded (and eliminated scarcity) that disappeared for all but the most powerful players. New players are generally powerless and disconnected, but can enjoy the early game essentially as a single player experience until a more experienced player attacks them and takes their stuff, pushing them back down again. Thus the EVE Online NR was never adopted in large numbers by gamers despite the beauty of the world.
It's lonely in space.
In 2011 Arena.net, aware of my work, contacted me to see if I could help with the design of their game economy for Guild Wars 2. They were excited about the possibility of generating a powerful sustained game economy that they could tap for resources as I described in an early paper on “Money Machines”. At the last moment they decided this task was important enough that they needed the world's top classical economist and at the time Dr. Yanis Varoufakis had just been credited with saving Greece from insolvency.
I don't know how much to credit him with as he exited the project a few months later. Given that they don't teach game economics in universities I would imagine he was trying his best to complete the secondary role of game economics without awareness of the first role of game economics. This was soon obvious because by selling game currency they were breaking one of the fundamental rules of game economics as described in the 2012 paper on money machines and also the 2010 Mona Lisa and the Alchemist. A year later, after the bugs were sorted out, I used Guild Wars 2 as a case study to show how one would even go about evaluating a game economy .
The end result was some sort of “fun pain” inventory hoarding contraption designed to force players to buy additional bag space. I consider it a missed opportunity to create a money machine in an otherwise amazing game.
The point I'm trying to make here is that people buy and participate in NR's with the objective of escaping classical economies. The last thing you want to do during the design process is introduce a classical economist into the design process. The math and statistics they have to learn is valuable, and game theory is very useful if they studied that (often optional if available at all), but the rest includes bad habits.
Game Economists Are Not
Economies, and especially game economies, are all about participants interacting with each other to overcome individual scarcities. There is an inherent interdependence that makes people feel needed which is key to happiness. Without that individual scarcity and need for someone else there is no need at all for an economy and economic activity disappears even if you build a very expensive player economy for them. The game instead becomes “massively single-player”. A sad and boring place. If a player isn't sure if anyone will miss them if they don't log in that day, they are much less likely to log in that day.
With few exceptions, modern games have no economies. They have budgets, that are typically highly scripted and controlled using an Excel spreadsheet. Like any budget. Employers often describe game economists in their job ads as “living and breathing Excel”. I know they think they are looking for an economist, but what they are really looking for is an accountant. When Wargaming agreed to hire me in 2013, they asked me what I wanted to be called. I said “Let's call me a Game Economist so that no one will know what I really do here”. Everyone just assumed that's what I did and didn't ask any questions, even inside the company, it was great! [For reasons I'm not allowed to explain...] I can't tell you what I was really doing there, but it definitely was not game economics.
So why all the confusion over the terms? I trace this back to 2011 or even 2010 when a company called Gameloft started hiring “game economists”. This was exciting for me until I realized they were looking for people to play with cells on Excel spreadsheets. Why didn't they just call them Excel techs or game accountants? Gameloft is French. The French are great at making anything sound sexy, it's part of their culture. The terms “Excel tech” or “game accountant” aren't very sexy. Who wants to get hired for such a role? Well, an accountant would presumably. Certainly when you are trying to talk investors into giving you money, it sounds WAY sexier to tell them you just hired six game economists even if all your games are mathematically and design-wise almost identical and contain zero economic activity.
The current lack of game economies in games is a reaction to those economies being attacked going all the way back to 2001 or earlier and there being no (known) effective remedies. Game developers then switched to game budgets where player scarcity was remedied only by buying a microtransaction or grinding. Grinding in these games is often designed to increase scarcity by giving you “3 of X and 1 of Y” when you need 2 of both to proceed. Or grinding results in a scarcity of inventory room like in Guild Wars 2. If a player could trade to overcome these scarcities, then the carefully scripted budgets would break down. This did nothing to solve core consumer needs and the result is an era of products that fail to meet consumer demand.
Making Effective Use of Game Economics
Game development is an ever more competitive business. Using the right tool for the right job, or in this case the right skill sets for each game system, not only results in a higher quality product but also lower production costs. Similarly, knowing what you are looking for during the recruitment process is going to make finding the right employee much easier. At this point I've probably talked to over 75% of the game dev companies in the Western world by market share, in some cases multiple times over the last nine years. Thus I know well where most studios rank as far as their understanding of how to utilize advanced quantitative design and engagement methods. Most of the other ones have employees that leak to me to fill in the remaining gaps.
To give you an idea of the landscape, I have listed the sorts of questions I get (usually in an interview) from various studios into “Okay but...”, “Good”, and a special mention for “Most Cringe Worthy”. Note that in the last eight years I've never heard a question from the “good” category from a studio member I wasn't already working with. This is a big part of the reason for this article.
Most Cringe Worthy
This excerpt from what was probably my shortest interview ever is brought to you by one of the ten most powerful studio founders in the West, who is now part of one of the five largest game publishers in the West.
Me: “Okay so let's say I build [XYZ] systems for you and it takes me six months and you go to market. Then what? Will you unrelocate me? This is a relatively short term job for a relocation.”
Studio Founder who had never made a F2P game before: “Don't worry about that. 60% of your design work will occur after the game goes live because we won't know how to design it until the BI guys tell us what to do.”
Given the source, and his level of influence, this must be a very common approach to game design now. It explains a lot of what I'm observing, and what you have been reading in our most sensational news stories. Explaining all that is wrong with his response would require another paper but I'm hoping it's obvious enough that this will be unnecessary.
“How do we improve our loot box performance?” [#1 most asked question]
I am tempted to say “Remove them” but then they would not know what to replace them with. Honestly this has nothing to do with game economics. If you want to get fancy with your gambling mechanics hire someone with a casino game design background. In the absence of regulation they can get pretty creative.
“How did you improve Game XYZ?”
Anyone that can answer this on an AAA game shouldn't. This is a fishing expedition.
“We are looking for an Excel wizard!”
This is a pretty common skill set, especially with accountants. Not really relevant to game economy design. Save some money and get a game accountant or just someone who knows Excel and train them up. If they are super fast with Excel you can have one inexpensive Excel tech do the spreadsheet updates for several designers. This would free them up to do...design. Note that as a journalist I do a lot of writing, but no one cares if I “live and breath Windows Word”. It's not the app that makes the writer, it is the words that go into the app. In much the same way, it's not about Excel (yes I realize Gameloft started giving Excel exams for their Game Economist positions in 2011, I took one in 2011), it's about being able to design economies.
“How much do you play our game?”
This is a tricky question. Playing your game a lot will of course yield a lot of insights. At the same time if they say they love your game this might not be true but more importantly it might bias the studio to hire a groupie over someone more qualified. “Yes People” always say yes. That makes the studio feel good but I've seen it doom several large projects. Your employees should be both willing and allowed to present critical feedback.
“We have all this data but don't know what to do with it.”
This is sort of putting the cart behind the horse. Computers aren't smart enough to design games without us yet, and when they are we will be unemployed. This situation only requires a game economist if the data is from a game economy. Usually it isn't because there is no game economy. If your studio is suffering from Data Bloat then hiring another data person is just going to make the problem worse. You need someone trained to understand gamer consumer behavior. Ideally you want a game physiologist if you are ready to make the leap to physiologically driven design (PDD) because without knowing why games work (or don't work) you will be forced to speculate. Just to be extra clear: statisticians and data scientists are trained to collect and organize data, not interpret it. For that you need a domain expert (also called a subject matter expert) related to your question. Without a domain expert your BI team is crippled. To my knowledge the only studio that operates with a domain expert currently is RIOT, and they may have more than one (since they use PDD). A domain expert is going to have an enormous amount of published articles proving that. Raph Koster would be an archetypal example in gaming, and unless you take the PDD shortcut (which still takes a decade) it takes decades to train a domain expert.
“Why is our game NOT working?”
This is a popular and good question. But asking why your game IS working is just as important. Without knowing this it is hard to improve it, and even harder to replicate that success in a new game. Again here you need a domain expert and/or game physiologist generally, and a game economist specifically if your game actually has an economy. More commonly a studio will ask that one person that has played the game 10,000 hours, but that person can only tell you why they like the game, not why the other 100,000 people quit your game.
“Would a different business model be better for our game?”
This is actually a very good question that a game economist should be able to answer. In order to build an effective game economy a game economist must mate the economy to the business model to ensure effective monetization. What makes this an “okay” question is when it is asked AFTER the game launches. Your business model is a contract with your customers. Changing it is high risk as some will feel you have broken your promises. This is a certainty if you take away or charge again for something they already paid for.
Does our game need an economy, and why?
How do we protect our game from gold farmers?
Should we allow our players to make real money in our game?
What do our consumers want?
What sort of user generated content is appropriate for our game, and what's in it for the creator?
How do we remove “pay to win” from our game without reducing revenue? [This should actually raise revenue by improving power delivery]
How do we increase the lifespan of our game?
[How do we improve our game economy?] You have to actually have a game economy to ask this, so the last time I heard this question was in early 2013.
How do we make our players happier and/or reduce toxicity?
How should we best come into regulatory compliance?
The “good” questions are some of the most fundamental questions you would want to ask a game economist, and if they are a game economist they should be able to answer all of these questions in detail. I would expect a classical economist or game accountant to struggle with any of these questions. If I don't hear any of these questions in an interview (normal) then that indicates that the studio is not actually looking for a game economist even if that's what they are calling the position they are attempting to fill.
Games with economies have been very popular in the past. I often say that investors make games, not game developers, and they lost a lot of money during the period after IGE really became fully operational. IGE is gone, and the industry threw out the baby with the bathwater by removing these very popular economic features (that were meeting core consumer needs) to “beat” IGE. Consumers were the clear losers. What is stopping you from making a game economy? Clearly “Games as a service” has been fully adopted. We know it works. If your problem is you are having difficulty finding or using a game economist, maybe you need to ask the right questions. Of course understanding what a game economist is (and isn't) should be a first step in deciding if you need one.