Anyone out there with a background in economics?

  • #21
    Quote from Jack in the box

    Am I the only one that thinks there are too many variables and not enough late-game information to make accurate predictions at this point? We can only speculate about the value of gold because we do not know how late-game gold drops will work. Not all the items have been set yet. Blizzard can also "tweak" the economy by changing or adding items via patches.


    I agree with you actually. Developers have said many times the one thing they need more of in later levels is gold.

    As well as virtual value goes, if a lot of people play and get addicted to their characters, you could see thousands of people willing to buy items. We don't known yet as this has never been attempted on a AAA game from a AAA developer that is doing this legit.

    In short, could be huge or could be meh.


    Also, item values will vary with supply and demand. It will probably take a month before enough demanders get to level 60 for example, so items won't sell much before that. Likewise as I said above, is this going to be a game where a vast amount play to high levels or will most quit after they finish it on normal? Blizzard appears to really be pushing this as a game where you play to end game (unlike d3 where most quit after normal) and if they are successful that will offer a huge potential market....
  • #22
    My initial aproauch would be get a estimated gold stock series and see (running an unitary root test) if gold stocks are estationary or not.

    Since theres no data available the approach need to be purely theorycal. As I see it sinks truely play a important role. It's not an matter of taking coin out of the economic, as most people think. Independent of the gold drop rates and sinks (which is a inverse drop rate), inflation exists and existe at the same level (unless ALL the gold is actually sinked).

    But i have the feeling the higest the utility for gold, lower the inflation. The actual model is bit hard to elaborate once you need to creat a economy with gold and this gold has both a means of trade and actual usage utility.
    "In time the hissing of her sanity
    Faded out her voice and soiled her name
    And like marked pages in a diary
    Everything seemed clean that is unstained
    The incoherent talk of ordinary days
    Why would we really need to live?
    Decide what is clear and what's within a haze
    What you should take and what to give" - Opeth
  • #23
    Anyone raised the idea that drop rates will be dynamic? i mean that the drop rates of items will be allowed to vary on a global scale, controlled by blizzard. I wonder what this will cause economically...
  • #24
    In the absence of any gold sink, the rate of inflation would be incredibly high at the beginning of the game, and gradually taper off asymptotically over the life of the game. This is simply because, at a fixed gold drop rate, there's a much larger relative change in the amount of gold early on, when people do not have a lot of gold yet, than later on, when the economy is flooded. More rigorously, a first order approximation of inflation is dM/M (where M is the amount of gold in the economy), and M is just the integral of dM from the beginning of the game until now. M goes to infinity as the time T goes to infinity, so dM/M goes to zero.

    If you have something resembling a percentage tax rate (for example, 20% of gold drops go to repair bills, on average), then the economy behaves exactly the same way, albeit with a slightly lower price level. The rate of inflation is unchanged - if the tax rate is r, then the rate of money growth would be (1-r)*dM; and since the total amount of money is the integral of dM, the total money would be (1-r)*M; and inflation would be (1-r)*dM / (1-r)*M, or once again dM/M.

    A fixed rate of expenditure would function the exact same way to a first order approximation. However, a more nuanced view shows that it gives higher inflation. When costs are fixed, the percentage of your income going to the gold sink will drop as you get better at the game and your income increases; so as players advance further, your gold sinks do less, and inflation accelerates. This is what a lot of traditional gold sinks in MMOs (like having to pay for armor and weapon upgrades from vendors) look like - and they end up making the inflation problem worse.


    What you actually need to stabilize your economy is a gold sink that takes very little gold early on (because you need to accumulate some amount of money in the economy if it's going to function at all), but increases as people progress in the game, until eventually your gold sink takes 100% of gold drops in the very late game.

    Taxes are incapable of doing this in any reasonable fashion. Instead your game needs to provide a service uniquely attractive to veteran players on which they will happily spend all their money. Gambling in D2 actually did a really good job of this pre-LoD; all your gold converts to items, which simultaneously sinks gold and generates more items (which pushes prices down as well) and thus fights inflation on both fronts. Crafting could also do this, in theory, but if gold is the limiting reagent in crafts then crafting materials are worthless.

    D3 accomplishes this through the 15% transaction tax on the auction house - by taxing expenditure in the player market, instead of gold drops, they eventually sink 100% of excess gold drops through that tax alone. Essentially, as more gold drops, prices increase - which increase the total gold sunk - until you eventually hit an equilibrium price level where the inflationary pressure from gold drops exactly equals deflationary pressure from auction house taxes.

    The other gold sinks honestly do not matter; if all you care about is keeping prices in line in the player market, the auction house is sufficient.


    Apologies for this being a bit long winded, but at least it thoroughly covered the basics to the best of my knowledge. If you remember nothing else, remember it's not the quantity of gold sinks you have, but the quality, because a poor gold sink does nothing while a well designed one can curb inflation on its own.
  • #25
    Perfect versions of items are worth considering. Using D2 items, if I made an ebotdcb and it rolled low stats, it gets written off as "junk", but it is still a version of the best sword in the game.

    Long term, when more of the perfect versions of items are being found and sold on the RMAH, the costs of these items will help to determine the cost of their non-perfect, "lesser" counterparts.

    If too many perfect versions of an item are posted for reasonable prices, people will not want to pay real money for the non-perfect items, and thus it would be more advantageous to sell the non-perfect item on the GAH, then turn around and sell that gold on the RMAH, depending on the exchange rate, of course.
  • #26
    Ensign's post has a lot of truth in it. The funny thing is that economic theories work even better for artificial economies such as the game ones since every aspect of the economy besides player choices can be fine-tuned. There's far less unknowns in an artificial system like this.

    The game will experience a period of inflation in the beginning, but it will even out once the amount entering the system comes close to the amount leaving the system (both gold and real money).
  • #27
    Quote from underarock

    Curious if anyone in the community has worked on economic models before. I would love to know their insight into all the limitations and gold sinks that Diablo has in effect and how that will drive the value of virtual goods in D3.


    None... Inflation will of course occur regardless as time goes along.
    Gold sinks just reduce the rate at which it increases.

    However, inflation only means that the value of gold per $ is less. Not much else. It is a natural occurrence in game and in life, and it in no shape of form would mean that the currency is going to collapse.
    One is never hurt by being given additional choices, only by taking them away.
    A QUADRILLION MAGIC FIND is worthless if you can't kill shit!
  • #28
    Quote from underarock

    Curious if anyone in the community has worked on economic models before. I would love to know their insight into all the limitations and gold sinks that Diablo has in effect and how that will drive the value of virtual goods in D3.


    im working on something to record various prices per item / per gold over time to see how it goes from release to a stable situation. looking forward to having some fun making models and stuff based on the fluctuations in market pricing and stuff haha

    hit me up if anyone wants to collaborate or discuss

    edit: oh, i'm a rising senior majoring in economics
  • #29
    ya i have been trying to come up with a good way to collect data, that seems to be the key issue. a bot that sniffs the game will most definitely get you in some dirt with warden. manual input seems slow and tedious and susceptible to human error...
  • #30
    Quote from underarock

    ya i have been trying to come up with a good way to collect data, that seems to be the key issue. a bot that sniffs the game will most definitely get you in some dirt with warden. manual input seems slow and tedious and susceptible to human error...


    yeah had the same problem. I'm just manually inputting things, should take like 20 minutes of searching the AH and typing a day. I prob wont do it every day but i'll try haha.

    I'm not good with making addons or anything technical like that, but (if it doesnt violate the eula) if someone made something that would monitor, record, and export to excel all the prices and quantities on the AH at various time, so you could see how much is going on the AH at a time, how that affects prices of other goods, etc etc.

    its all a problem of information :P
  • #31
    I think it will be interesting to watch a game economy where you can buy things in Gold, you can buy things in $, and you can interconvert gold and $ at a fixed tax rate of 27.75%.

    The total amount of Gold in the game will eventually level off as the rate of gold creation (drops from enemies) equals the rate of gold destruction (AH fees + repairs + other vendor fees). At this point it's likely that there will be a somewhat stable $-to-Gold exchange rate. The 27.75% tax rate represents a hard limit on how much the exchange rate can fluctuate.

    If the real-money price of Gold were to transiently drop by more than 27.75%, it would be cheaper in $ to buy Gold and then purchase items on the Gold AH, and demand for Gold would skyrocket until Gold prices went back up.

    Conversely, if the real-money price of Gold were to increase by more than 38.41%, it would be cheaper in Gold to sell all of your Gold for $, and then use the RMAH. The supply of Gold would skyrocket until Gold prices went back down.

    It's plausible to believe that even very small fluctuations in the $-to-Gold exchange rate will dramatically change the supply and demand of Gold. This implies that the exchange rate will be quite stable, at least in the short term. Because this exchange-rate balancing mechanism is based entirely on the existence of the RMAH, I believe the Gold exchange rate will closely track the realmoney value of Diablo 3 items. If people are willing to pay more money for D3 gear, then people will also be willing to pay more $ for Gold, as it is a mechanism for acquiring gear. If people stop buying D3 gear then there will be greatly decreased demand for Gold as well.


    =====
    It's difficult to predict what prices will do beyond the first few months of the game. As in any nascent economy, prices will be sky-high at the very start because supply is so limited. The very first "Tier 18 Awesome Plate" to drop is likely to command a totally absurd price. The next ten will also be expensive. Once there are thousands of them circulating the price will stabilize to some extent.

    Because items are non-perishable, the supply can only increase over time. An item that is super awesome in October 2012 is likely to be mediocre in October 2013. (even ignoring expansion packs) This builds in a certain amount of depreciation into the economy - even though the actual stats on a piece of gear don't change over time, its value can only decrease. (Unless a patch causes it to become a super-rare "pre-nerf item" - this is not too different from real-life economic phenomena like "pre-ban assault rifles")

    However, it is worth noting that, if you are actually buying items that you can use, those items can make it easier for you to find more items. Even though equipping an item for a prolonged time exposes you to depreciation, it also can increase your kill rate, help you get through Inferno, and increase the chances that you find better items. In addition, it's just plain fun to have good gear. For this reason, the inherent "depreciation" of D3 gear does not make it a bad investment. This can be paralleled to the real life phenomenon of how having a cell phone increases your chances of getting a job and is therefore (generally) a good investment despite the cost.

    Of course, the Diablo 3 version of this phenomenon is unlikely to be cost effective, because it is primarily for entertainment. In other words, the free-market price of a D3 item will include a certain "usefulness value" and a certain "entertainment value". As D3 is primarily a game and not a job, I'm certain the vast majority of the price will be "entertainment". You would get better gear faster by working more hours in real life, getting real money, and purchasing gear. Of course, then you might not have as many hours to play your geared out D3 character.

    =====
    This all begs the question of what happens to the D3 economy once third-world farmers enter the mix. If spending an hour playing a level 60 character generates $0.50 of real-money economic value, that's not a whole lot in the US but will far exceed the hourly wages in many poorer countries. Should gold/item farming be considered a legitimate economic activity?

    This also begs the question of what happens when someone finds a horrifically overpowered combination of gear and character build (possibly a combination of several characters). If the average max-level Diablo 3 player generates $0.50 of real-money value per hour, and a "really good" Diablo 3 player generates $3.00, what happens when someone finds something game-breaking and is now making $30 per hour playing D3? When Blizzard nerfs them, they've suffered a significant economic harm. But if Blizzard doesn't nerf them, everyone else in the game suffers an economic harm as all of their items and characters depreciate rapidly and severely.

    The real money considerations are really quite interesting.
  • #32
    There are a few more possible money sinks that haven't been mentioned here... the main ones I can think of without putting to much thought into it are:

    * Crafting (both recipes and materials) (though not really a 'sink' as it produces stuff)
    * Consumables (especially important once PVP comes out - surely there are going to be items all PVP lvl60's will want to give them an edge, e.g. potions etc.)
    * Is there any upkeep in D3? (either weapon repairs, follower upkeep etc.) - what about dye's etc. if you change armour appearance?

    I'm sure there will be a few others too.
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