1. Stewart Butterfield on September 30, 2003 12:59 PM writes...

Not so fast! This may or may not be what Granick is getting at, but the role that limited supply plays in the prices of virtual goods is usually passed over.

There are only a certain number of copies of X-Men #1 in the world right now. If they all went on sale simultaneously, no doubt the price would drop (though I'd imagine, not knowing much about comic collecting, that they'd still be able to fetch something).

I'm not sure of the same is true of Britannian Gold Pieces (one of Ultima's primary currency). If all of it went on sale tomorrow, I suspect there would be total collapse.

(You might imagine the diamond market as being somewhere in the middle - people would still pay if De Beers stopped holding back their Nx100 year supply, but not nearly as much.)

This is why I've naver taken seriously the claim that Everquest is the 79th (or 77th) richest economy. If both Bulgaria and Everquest held liquidation sales ("everything must go!"), which assets would fetch the largest total number of real world dollars?

2. Clay Shirky on September 30, 2003 2:02 PM writes...

_I’m not sure of the same is true of Britannian Gold Pieces (one of Ultima’s primary currency)._

Brittania's gold supply is, of course, limited. It has to be, or it wouldn't be money.

And, if it were not limited, it would not sell for any money on eBay -- it would be like selling lint.

_If all of it went on sale tomorrow, I suspect there would be total collapse_

Nope, because if even half of it went on sale, the price would fall so much that a number of people would decide the value had fallen too much to sell, and would wait it out.

The only thing that would cause total collapse is if Brittania Gold stopped being useful because e.g. Brittania stopped existing. (Compare Confederate dollars.) Until then, a BGP will be worth something to someone.

Grankck's quote indicates a discomfort that worth is indicated by market activity, but a Brittannian gold is no more or less virtual than stock derivatives, and the market has no problem valuing those.

_This is why I’ve never taken seriously the claim that Everquest is the 79th (or 77th) richest economy._

Well sure. This was just Ted ho'in' for hits -- the lack of comparables makes that a silly but eye-catching statement. It doesn't alter the fact that BGP (or any other virtual good that people are willing to pay for) is worth real money, and that stealing virtual goods is real theft.

3. Edward Castronova on September 30, 2003 2:24 PM writes...

Actually, I am sure she was misquoted. The issue here is one peculiar to auctions, it is a thing called "the winner's curse" (see book by Richard Thaler). Economic theory suggests that if everyone participating in an auction is a rational, perfectly-optimizing person (i.e. "strategic" - bidding to win - rather than "sincere" - bidding your own value of the thing), the winner will over-bid every time, in the sense that she places a bid that exceeds her own valuation of the good. If I know that the value of the good is $100 to everyone and I know that they all know that, then we all know, collectively, that everyone will bid at least $100 for it. To win, one of us has to bid $101.

Actually, I am guessing that that logic probably isn't the core idea, but I don't care that much - how many of these auctions are completed under the conditions that everyone is strategic rather than sincere? Ummm, zero. Economic theory, let me introduce you to actual human choice paradigms. O, sorry, that's the gang that keeps beating you up. Apologies.

Moreover, running tallies of bids per auction on eBay cat 1654 show that average bids are about 2.2. That means that many most trades are actually "buy it now" sales, not auctions.

All that having been said: Granick is absolutely right - there is an ample theoretical literature in economics that disputes the connection between winning auction bids and the efficient prices of a free-for-all market. Personally, I doubt that the disparity is all that large. But it is there.

The broader point, and much more powerful argument I think, is that we should explicitly define some of these places as PLAYGROUNDS where Earth law has no effect. Granick used the following analogy: we have damages in romantic relationships all the time, yet we do not allow them to go to court. You cannot sue your ex-girlfriend for a broken heart. So, Society is free to decide that Law simply does not apply in certain circumstances.

This argument is critical. If you believe, as I do, that play is an important human function, and that these places are a boon to humanity primarily as sites of Play, then you should consider whether we ought to impose Earth law on them.

4. Stewart Butterfield on September 30, 2003 3:09 PM writes...

> > I’m not sure of the same is true of Britannian Gold Pieces (one of Ultima’s primary currency).

> Brittania’s gold supply is, of course, limited. It has to be, or it wouldn’t be money.

Sorry - didn't mean that BGP wasn't finite, but that it wouldn't find a price if it all went on sale, as (I think) all copies of X-Men #1 would (or all the plant, consumables, etc., in Bulgaria).

(And, as long as there are NPC vendors in UO who buy far more than they need, the internal pricing is wonky and you can convert CPU time to GBP via macros.)

But I do think that BGP is "more virtual" than derivatives — all derivates, even the really abstract ones, are derivate of something (securitized mortgages, interest rate movements, insurance payouts, etc.) All of those things could simultaneously find a price at a given instant whereas all the stuff in a given virtual can't.

Finally, just because a price can be found for something that doesn't imply that it has some fungible, across-the-board value: people pay for sex, but adding a theft charge along with every rape convinction would be stupid (not to mention insulting).

And Ted: I absolutely agree with you both on the fundamental importance of play, our need for it, and the fact that it should be a domain outside of laws designed for the "real" world.

5. Edward Castronova on September 30, 2003 3:27 PM writes...

"This is why I’ve never taken seriously the claim that Everquest is the 79th (or 77th) richest economy."

"Well sure. This was just Ted ho’in’ for hits."

Let the record show that, at the time I posted that paper, I was a complete web n00b. I had no idea that hit counts could make a difference. (Now that I know it, however, I ho for hits as a matter of policy.)

SEX BETWEEN CONSENTING ADULT GNOMES

And if it is worth anything, I actually do believe that number. I really do believe that the value of material production per person in EverQuest exceeds that of China and India combined.

6. Bruce Boston on September 30, 2003 5:44 PM writes...

"Sorry - didn’t mean that BGP wasn’t finite, but that it wouldn’t find a price if it all went on sale"

This is actually the case for any currency. The exchange rate between, for example, Japanese Yen and US$ is not based on the intrinsic aggregate values of both money supplies. Exchange rates are based on currency flow rates between any two currencies, or the flow rate between all currencies in the market.

If everyone in Japan tried to exchange all the Japanese Yen for US$ tomorrow, we would certainly see a rate fluctuation similar to the fluctuation you might predict if everyone tried to dump all of their BGP for US$.

7. Edward Castronova on September 30, 2003 6:01 PM writes...

Bruce's point is also an important one to keep in mind. If everyone sold General Motors stock, its price would be zero. But we don't call the corporation valueless as a result. No, we use the current stock price multiplied by the shares outstanding. The current price is, in fact, the only valid measure of the value of the stock right now. It gives us the value in use (the willingness to pay of today's buyer) as well as the value in cost (the amount a current holder must be compensated to surrender it).

8. Stewart Butterfield on September 30, 2003 6:13 PM writes...

I can take that point with respect to currencies (it's pretty hard to imagine what would happen if all the Yen went on sale), but since companies get acquired all the time (including big ones like GM), it's not true that if everyone sells the price drops to 0.

9. Stewart Butterfield on September 30, 2003 6:15 PM writes...

> The current price is, in fact, the only valid measure of the value of the stock right now.

Tell that to Warren Buffet ;)