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Everything I know about Economics I learned by playing video games

by Kevin Marks on Jul 01, 2012

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Christopher Marks (15) explains the intricacies of farming and trading in video games. See the video at http://j.mp/kitIgnite

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It was late on a summer night, as I sat typing into google translate to sell my Ten Gallon hat with the Scorching flames particle effect to a Japanese man, that I wondered - how did I get here? This is my story..
When I was a noob, my friend Joe told me to kill cows in Lumbridge. I could level my combat and make a decent profit by selling their hides at the bank in Al Kharid for 100 gp each. I thought I would be the richest player in RuneScape by killing cows for cowhides. I set off to collect 10 million of them.
Around my 200th hide, I saw someone else at the bank, selling them for 50 gp each. At first, I felt like I was going to lose all my money as I had been undercut. But then I realized that I could simply buy all his hides for 50 gp each and then sell them for 100 gp each, and make a huge profit with very little effort.
At that moment, I realized that I could make money by not actually gathering materials but by simply buying stuff cheap and selling it high. While this may seem like a simple concept, to a 10 year old it was incredible. And that’s how I got into trading.
On a quest, I found an NPC that sold me dragon daggers for 17k, and found I could poison them for 1k. Dragon daggers are great for PvP combat. So, I went to the most popular PvP world and sold them at the bank for upwards of 55k. This was quite a significant profit for such little effort. [manufacturing goods + arbitrage ]
One day RuneScape implemented The Grand Exchange, a game-wide trading building. Instead of shouting outside the bank, players could trade items at a set price, and it automatically matches up the trades. Prices would change daily according to the laws of basic supply and demand.
I examined the grand exchange price graphs and I ended up profiting a tidy sum from “merchanting” dragon darts by buying up the stock and causing the price to artificially rise. The cool thing about this was other people started investing too, which therefore helped all of our profit margins.
This led to“clan merchanting.” A clan would buy up all of the stock of the item and then dump the item at a certain price and make a large profit. The trouble was, the higher ranked members in the clan who set which items to merch would dump their items before anyone else. This ended up leaving lots of people with items that wouldn’t sell at their artificially high price. [concert party]
RuneScape imposed price limits to restrict scamming and real world trading. To get the market price, sellers had to add “junk items” - items that had no real worth, to their trade so that they could change the price to what they wanted. When this became widespread, they dropped the limits.
Now you can do “flipping.” You buy an item for 15% over so you can see the upper bound, then sell the same item for 15% under so you can see the lower bound of the item. Now, you know the price range. So you buy items for 1gp over the lowest bound, and when you get the item, you sell it for 1gp under the higher bound.
There are two types of items in runescape- useful items and cosmetic items. Some useful items also double up as cosmetic items because they are a status of your wealth in the game- high level armors are expensive because they have better stats, and they’re cosmetic because of how much they cost.
Rares are now used to display wealth and are the most expensive items in the game. The thing about these items is, even if the price goes down in the short term, they will only rise in the long term because there is no increasing supply and as more and more people gain enough wealth to purchase them, the demand goes up. They're Veblen goods.
There is a large market for items like these not only in Runescape, but also in Team Fortress 2. 8 The main difference between the Runescape economy and the TF2 economy is that Runescape has a set currency, gold coins, while TF2 does not. It requires much more time and studying to fully understand the value of different items in the world of TF2 trading.
The most preferred currency items are metal, keys (which open mystery boxes), and earbuds. Buds were a promotional item given when TF2 was released for Macs. They are used as a currency for unusuals, and are the preferred currency to be paid in. There are 4 ways to make money in TF2.
1 bud is worth roughly $31 USD and 24 keys. Keys are worth $1.49 USD each currently. So, people buy the earbuds for $31 USD, sell them for 24 keys, and then sell the keys for $1.49 each, profiting $4.76 USD per earbud. While it may not seem like a lot, it adds up and does not take very long to buy the buds, sell the buds and then sell the keys.
The second way that people make money is by trading unusual hats. This requires a decent amount of expertise and research and I wouldn’t be able to explain it even if I had the entire 5 minutes, but there are 3 factors that affect the price of hats: particle effect, hat, and class.
The trick is to find people genuinely interested in buying your hats as well as knowing which hats are popular among the players so that you can trade up and make a profit. The most important part of the trade is to be persuasive and respectful, because being an asshole loses you 99% of all your trades.
Finally, idling. Every week in tf2, you can find 5-7 items (weapons/hats). Naturally, people abuse this and set up 10 or so steam accounts to "Idle" in tf2 to get these free items. Valve is against this and awarded players who didn't idle an angel halo hat called the "cheater's lament."
The third and most-frowned-upon TF2 business is sharking. Players with a large knowledge of the different hats use the unusual search to find new players who have unboxed an unusual, and then buy the hat cheaply by taking advantage of their lack of knowledge.
Valve just hired an economist, Yanis Varoufakis , who is trying to measure these trades directly, and is approaching the TF2 economy from a real-life economic standpoint (by evaluating the role of equilibrium in TF2). So far he has some of it right, but he's still a noob.

Everything I know about Economics I learned by playing video games Presentation Transcript

Everything I know aboutEconomics I learned by playing video games Christopher Marks
Killing Cows
Being undercut.. for profit!
My first steps in Arbitrage = 100gp at my sell price + = 100gp at my buy price2 for the price of 1 = profit!
Manufacturing goods + Arbitrage = 17k coins from NPC store+= 1k coins street price= = 55k street price55k-18k = 37k profit
Grand Exchange
ChartismStep one: go to "top 100 price drop by %“Step two: find a useful item (for pking, PvM, etc)Step three: look for daily line under 30-day lineStep four: Buy up stock of item, watch it rise ???????Profit (by selling it, obviously)
Clan Merchanting (larger Chartism)
Junk trading (to get around trade limits)
Flipping (arbitrage via the G.E.)How to:1) find the price range by buyingthe item for higher than mid andselling for lower than mid (sincethe ge insta matches trades)2) then, buy multiples of the itemfor 1gp over the lower bound,and sell them for 1gp under thehigher bound.
Useful items vs. Cosmetic itemsUseful items: Cosmetic items: Both:
Rare tradingRare: a tradable holiday item from when Runescape was a new game, worth lots of gp
Official currency Vs Player asserted currencyWorth: 2.147 billion gold coins Worth: ..11 buds?
Currency in TF2+ =+ + =+ + =+ + =x8 = + + + =
Buds for keys = $31 USD= x24 = $1.49 USD$1.49 x 24 = $35.76Profit from buying buds,selling for keys, and sellingthe keys: $4.76 per bud.
Trading unusual hats
Most importantly: be persuasive & respectful
Idling
Sharking (usually done by traders with power)
Valve hires an economist

Everything I know about Economics I learned by playing video games

by Kevin Marks on Jul 01, 2012

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Everything I know about Economics I learned by playing video games Presentation Transcript