'Virtual economies' are all around us, from social media, to bitcoin, to the games on our smartphones. But what exactly is a virtual economy?   And is there anything that these virtual economies can teach us about 'real world' economics?

Pod Academy's Alex Burd returned to the Oxford Internet Institute to speak to Vili Lehdonvirta, a research fellow there.  Alex previously interviewed Vili about Bitcoin for us (podcasts: Bitcoin 1  and Bitcoin 2).

This time he went to talk about Vili's new book, Virtual Economies: Design and Analysis (by Vili Lehdonvirta and Edward Castronova, MIT Press, 2014)

 

 

In developing digital games, designers often develop an economy within the game itself.  These economies can drive the game, just as an economy does in the real world.  Then there is bitcoin - is that developing into a useable currency?  And can we learn anything about economics from understanding what is involved in clicking 'like' or 'retweet'? Vili became intrigued by what these virtual economies might teach us.  He started by explaining that he and Edward Castronova first got the idea for the book at a conference of digital game developers in San Francisco:

Vili Lehdonvirta:  I’ve been going every year for the past 5 years to a digital developers' conference to give a talk there about what the academic study of virtual economies can teach game developers and digital developers. In 2010 I was there on a panel about virtual economies in online games, it was a panel where all of the panelists were academics and the game developers were quizzing us. One of the questions was

‘What should I read if I want to make use of economics and economic sociology. Should I just pick up an economic textbook.’

My co-author, Edward Castranova, was also on that panel. The two of us thought ‘well, if you pick up an economics textbook in theory everything is the same. But in practice everything is focused on very different objectives'.

Then we thought, we’ll write the text book for you! Obviously we also wanted to make it interesting to academics so it’s a slightly broader book than just for developers.

Alex Burd: So you you wanted to write a book for developers who wanted to know more about economics and academics who wanted to know more about games.

VL: That’s right, game developers and digital developers more broadly. Not just games but anyone who is developing online communities or shared information pools or crowd sourcing systems or a new virtual currency – that’s one of the audiences.

The other audience is academics and social scientists who are interested in media and social communications and are interested in behaviour and power in digital media.

Basically we’re arguing to scholars that if you want to understand how digital media affects behaviour, whose power it enhances, what kind of behaviours are valued and privileged, and what kind of constraints and budgets are placed on use, then you really have to take this economic perspective on digital media. You can’t just treat it as communication, as speech, as abundant bits that are only restricted by creativity.

There also these very concrete constraints and choices and ownership and exclusivity that are programmed into the infrastructure of digital media, everything from social media to numerous games that people play every day. And understanding that is crucial for any scholar studying digital media.

AB: Looking at social media specifically, it’s about being able to put some kind of value on the interactions that users have with publishers. What value someone clicking 'like', or someone clicking 'retweet', has?

VL: It’s that, yes, but it goes beyond just economic value. Microeconomics fundamentally is a science of choice, choice under constraint.