Video Games and Economics
Can video games teach us anything about economics and investing?
Video games have been around for decades and I imagine most of you reading this will have played one. In 2023, it’s estimated that about 3.1 billion people played at least one video game and by 2030, the video game industry will be worth $584 billion.
They no doubt have their issues, especially in an age when it’s easier than ever to spend huge amounts of money and time on them. But they also have a range of proven benefits including improving reaction times and teamwork.
But are there other benefits too? Can video games teach us anything about economics and investing?
Many of the most popular video games have their own complex economies and often share many characteristics with those found in the real world. They’re most common in massively multiplayer online roleplaying games (MMORPGs) like World of Warcraft, Runescape and Guild Wars. These games require players to interact directly with one another creating a dynamic market of buyers and sellers for goods.
They share a lot of features with real-world economies including:
Market exploits - Hacking and using bugs to earn money is common in video games, even single-player ones. Much like in the real world, if there’s no penalty for it, many players are more than happy to fill their own bank accounts at the expense of others.
Arbitrage - When possible, buying goods in one world or server to sell them in another is a practice found in many MMOs. Players can easily acquire a good in one server and login to another to sell it for more, until the price eventually reaches an equilibrium. Once this happens they can just start doing the same again but with a different item.
Inflation - Inflation in video games is a common issue, notoriously in World of Warcraft. After one expansion, players could use gold farming (the practice of outsourcing in-game gold collection to cheap foreign labour in the real world) to sell in-game gold for real money. The amount of gold in the game skyrocketed along with prices. This didn’t bother rich players too much but made it difficult for new accounts to earn enough.
Luxury Goods - The scarcity of some items makes them extremely valuable, even if they’re not any more useful than other items in the game. Much like luxury goods in the real world, their high value largely comes from a demand/supply imbalance and demand is driven almost entirely by marketing and perception.
World of Warcraft (WoW)
Perhaps the most famous example of an in-game economy mirroring a real-world one is WoW. The game’s economy is notoriously complex and has been studied by economists thanks to its parallels with real-world economies.
Gold farming is also a common practice in the game despite it, in theory, being prohibited. Entire companies like Internet Gaming Entertainment, have been founded solely to sell in-game goods for real money. These companies often exploit cheap labor overseas to mindlessly repeat the same in-game tasks over and over again, earn gold, and sell it to other players for real money, thus creating huge inflationary pressures.
Unfortunately, much like in real life, a lot of the gold goes to the top 1% of players for whom money just doesn’t matter much. Like some sort of video game sweatshop, a small number of players produce the goods and provide them to others but actually see little benefit once they’re sold.
Runescape is very similar to WoW in its gameplay but has some interesting quirks in its economy. One of the most famous back when I used to play it in the mid-2000s was the Christmas Crackers, and it turns out they still exist.
These crackers were only dropped during a 2001 special event. Opening them could reward you with a worthless party hat or something much better. But over time many of the crackers and hats have been lost as players have either quit or been banned.
The result? The price of crackers and party hats has risen from virtually nothing in 2001 to about 35 billion gold (or $3,000 if you want to pay real money) today.
The sole reason people buy and wear the hats now is to show how much money they’ve got; they serve no practical use. If this isn’t a great example of a luxury good in a video game then I don’t know what is.
The long-running Sid Meier’s Civilization series lets players create their own civilization and pick their own economic system. Much like the real world, resource management is critical to playing and winning the game.
Opportunity cost is also a key component of the series. There’s only a limited number of ways to win (scientific, cultural, domination, religion), so you have to focus on one of them at the expense of the others and do so whilst being attacked by other players.
The different economic systems in the game (socialism, capitalism, etc) also teach players about their pros and cons. The series is undoubtedly one of the most educational mainstream video games out there with studies published into its potential as a way to teach macroeconomics
Whether players actually learn anything about the real-world economy from video games is debatable but there’s no doubt there are a lot of similarities between the two.
As the space continues to evolve and the levels of immersion increase, there’s plenty of potential for the wider use of video games as a form of education and even more so with the development of AR and VR technology.
Maybe the economics lessons of the future will look more like below than what we’re used to today.