I just discovered this response from Nate Combs, a TN writer, to an earlier post of mine. Mr Combs says,
“A player’s ‘profit’ in Eve-Online may not, in significant part, be the same profit they would seek in a real world market. This, I think, is the fallacy of comparing virtual world markets with real ones.”
My post was somewhat sloppy. Strictly speaking, individual people maximize utility, not profit—firms maximize profit. Monetary benefits are only one of many inputs in the utility function.
In this view there is still no difference between the virtual world and the real world, Mr Comb’s suggested ‘fallacy of comparison.’ In the real world we have to worry about utility ≠ monetary benefits as well. Why are private school teacher salaries lower than public schools? Some suggest it’s because the school environment is better at the private schools, hence public school teachers need to be compensated for teaching in a more unpleasant environment. This is the idea of compensating differentials.
And so it goes in the virtual world as well. Mr Combs suggests that the extent of transport costs’ incorporation into final values (are they added or not) “could be a good indicator of how economically rational players were.” Suppose we run some econometrics and find that, on average, players aren’t factoring in their transportation costs when pricing their goods. Does this mean they failed to consider them and hence are irrational? I don’t believe so. Rather, perhaps the path from the mine to the market was a pleasant ride past a rainforest planet. That is, there was positive utility from the trip, and hence the player was willing to ‘pay’ the transport costs themselves in order to receive the trip utility. The cost of transportation was negated by the positive trip utility.
Trying to show truly irrational behavior is very difficult because all these unobserved net effects. See this paper (gated) by Lee and McCrary (2005). Here is a summary article at Slate.
I will follow this up with more details in a week or so, after my GRE is completed.
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