Video Game Economies

Whoever first stated “the only things guaranteed in life are death and taxes” must have never played an MMORPG. They never seem to die. Runescape, Destiny, Star wars: The Old Republic, Diablo… 

Anyone remember World of Warcraft? I do. I fondly remember playing world of Warcraft with my grandpa; a pastor, engineer, veteran and a disgustingly powerful monopolist. He had me stacked head to toe in the best gear the steam wheedle cartel server had to offer. New bracers? No worries, spot on the raid team for Ice Crown Citadel? Ez, free subscription for eternity? I got you. He amassed such wealth that he could make or break a guild. He was a price maker, market manipulator and every other dirty word you could think of.

To quote Nassim Taleb “what fools call wasting time is often the best investment” and I honestly hope so with a (erroneous) total of 5.93 million years played across 116,287,098 players (that’s World of Warcraft alone)1. With the data from the economies that MMORPG’s rely on, Taleb may be right. Academics have created a rich dialogue on applications in Economics, Finance and even criminal psychology. Let’s see how far this rabbit hole goes.

Eve online: the poster boy of virtual economies and a sandbox for a bored Economist

Allow me to introduce you to Eve online. It’s your average sci-fi space simulator, but with a GDP estimated to be $7.4M USD and its own chief economist, Doctor Eyjolfur Gudmundsson (who we will call Big G for simplicity)2. Eve’s economy is the poster boy for what a virtual economy can become. It relies on the currency of ISK (Interstellar Kredits) and a series of in demand commodities that are not scarce. The player base has created a monetary policy system within their own regions, selling and buying war bonds to fund inter-galactic campaigns. Its commodity markets boom, bust and plateau with the ebb and flow of the ongoing wars between factions as demand for warships reacts to the geo-political tensions of the galaxy. Insurance markets exist for players’ space ships in the event they’re on the receiving end of piracy.  Players have even gone so far as to commit insider trading with faction war bonds, which resulted in permanent bans from the developers, CCP (no, not that CCP). In that instance, funnily enough, the banned player was a US GOP lobbyist in Washington D.C. Definitely raises some eyebrows. 

Largest EVE Online Battle in History Causes $330k in Real World Damage |  TechnoBuffalo
The ‘bloodbath of B-R5RB’. A 21 hour culmination of a years long cold war between two rival powers. An estimated 300-330,000 USD was destroyed in resources, not accounting for inflation.

So, how valid is the poster boy of virtual economies outside of these factoids? Does the model hold up? Yes and No. Dr Marianne Johnson of the university of Wisconsin first applied the principles of a perfectly competitive market to the economy, being

  1.  Consumers believe that all firms sell identical products
  2. Firms freely enter and exist the market
  3. Buyers and sellers know the prices charged by firms
  4. Transaction costs are low

She found through research on Eve’s commodity markets that all four of those assumptions held, and that the virtual economy provided an avenue to accurately test game theory, auction theory, and basic microeconomic principles 3. Her and big G both agreed that a simulation of classical economics was created, and consequently that this new tool could “shine new light on modern econometrics”. Time can only tell what we have to learn from this mass social experiment outside of proving what we already know. With 18 years worth of unadulterated data, history, conflict and a tendency for MMORPG’s to never die, the sky’s the limit.

The model does run into some issues however. As touched on, resources are infinitely generated, removing the pressure scarcity that determines supply in the long run. The game also lacks any centralised fiscal or monetary policy, with factions’ own policies being difficult to record due to the live fast die young nature of them. The ramification is that Eve only works in the short run. Additionally, you can always just get up and leave whenever you want, its just a game. Instead of trading real money for resources and necessities, you are trading your time, the opportunity cost being whatever the real world has to offer you. Finally, it is incredibly Austrian in nature, and verges on anarcho-capitalist, with only hints of regulation and authority from the developers (usually for the sake of people’s real world lives)4. Overall though, the model works, right?

Stagflation and Hyperinflation: Where the model goes terribly wrong

Stagflation occurs when the inflation rate is high, the economic growth slows, and unemployment remains steadily high. Naturally, people don’t get unemployed in virtual economies, but they do stop playing altogether. Given the current inflationary fears, it’s refreshing knowing we aren’t alone in being concerned by it.

In January this year, amid Eve’s monthly economic report, forum users started to piece together an ongoing trend. Production was falling, but the money supply was near all time highs and the velocity of ISK was near all time lows. Stagflation had grasped Eve’s economy. CCP even argued otherwise, which many thought was an attempt to prevent players leaving in droves.

Money Velocity of Interstellar Kredits (ISK). Source; January 2021 EVE Online Developer Monthly Economic report,
Money supply of Interstellar Kredits (ISK). Source; January 2021 EVE Online Developer Monthly Economic report,

Here, the economy works off of a set of sinks and faucets. As players build up substantial arsenals (the faucet is filling up the sink), geo-political tensions build and wars break out resulting in destruction of assets (sinks are drained to be filled again). Destruction is thereby used as a metric of economic activity, making production an early sign of destruction and vice versa.

Growth indicators of EVE online. Source; January 2021 EVE Online Developer Monthly Economic report,

Having created the January economic report, CCP saw the writing on the wall and devised an impromptu plan. Studying world of warcraft and its hyperinflationary state, Jens Holm and Erkki Mäkinen found that inflation is inevitable given the creation of further content. The greater the content, the greater the increase of exogenous resources through non-player character interactions. The solution that CCP cooked up was the unofficially named Age of Scarcity update. This content was anti-content if you will. Resources became artificially harder to come by while the costs of creating ships increased. Their policy was one of further stagflation.

In the 1970’s, stagflation culminated in years of political and social upheaval. That’s exactly what CCP wanted. They wanted destruction, conflict and consequently content, through anti-content. CCP had no way whatsoever of removing ISK from circulation fairly. So, players did it for them by emptying the sink. As we can see below, it worked, creating a level of brutality and desperation between players that had never been seen.

Nearly 14,000 players logged on to partake in a 2 day battle during the destruction spike. This single conflict destroyed $340,000 USD worth of resources. Over $1.6M USD was used in ships alone in this conflict.

Herein is the main flaw of Eve as an economic experiment. The average person doesn’t wake up and choose violence. Individuals (hopefully) act rationally. The main motivation in finding work and getting a wage isn’t to dominate the rival faction, it’s to have the life you want. These guys here have markets, faux monetary systems, geo-politics and all the other good stuff in order to more effectively waste each other’s time. The motivations are as far apart as can be.

Some parting words on Eve and other video game economies

As Ludwig von Mises, father of the Austrian school of economics stated,

“ it is impossible to describe any human action that does not refer to the meaning the actor sees in the stimulus as well as in the end his response is aiming at”

Not to get too philosophical, but old mate has a point. Eve’s economy is fundamentally different to any and all real world models, and that extends to all virtual economies. you simply can’t replicate reality, and naturally, there’s always going to be that issue in using it as anything more than an interesting case study.



2:; accounting for US inflation since 2019. Additionally, the conversion of ISK to USD is done through in game currency called PLEX, which is purchased by real world currency. PLEX is then used to purchase ISK for an exchange rate of roughly 1/800,000,000


4:  Consumer Sovereignty, a key concept of austrian thinking: “the influence consumers have on the effective demand for goods and services and through the prices which result in free competitive markets, on the production plans of producers and investors, is not merely a hard fact but also an important objective, attainable only by complete avoidance of governmental interference with the markets and of restrictions on the freedom of sellers and buyers to follow their own judgment regarding quantities, qualities and prices of products and services.” (wiki)

Further reading