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Designing Virtual Currency by Breaking (Almost) Every Rule in the Economics Textbook

Presentation given at Game Developers Conference 2012 on 7 March. See the notes tab below for partial transcript. Abstract:

Many games today feature virtual money of some sort, whether a "hard currency" sold for real money or a "soft currency" earned through play. The question that this lecture answers is, how do you design money? Not how do players obtain money, nor how do they spend it - but how do you design the money itself. Economists have identified around a dozen attributes of a good money - the kind of money that makes an economy efficient. These attributes make a great guideline for designing serious digital currencies. But in game design, we don't always want things to be efficient - we might want them to be challenging and fun instead. In this lecture, we therefore turn the economists' advice on its head and come up with a guideline for designing "bad money"! Both historical and virtual examples are included.

http://virtualeconomists.com

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Designing Virtual Currency by Breaking (Almost) Every Rule in the Economics Textbook

  1. 1. Designing Successful VirtualCurrency by Breaking (Almost) EveryRule in the Economics TextbookDr Vili LehdonvirtaVisiting Fellow, London School of EconomicsTwitter: @ViliLe
  2. 2. .comVirtual Economists L td M arch 2012 Virtual Economists L td A pril 2012 Social Games M obile Games Virtual Goods & Currencies Pricing Report Virtual Goods & Currencies Pricing Report 1/ 2012 1/ 2012 Introduction and Virtual goods catalogs Pricing virtual goods: Introduction and Virtual goods catalogs Pricing virtual goods: definitions in social games general distribution definitions in mobile games general distribution Social games are games played N umber of virtual goods for Introductory goods convert Social games are games played N umber of virtual goods for Introductory goods convert on social networking sites. sale depends on genre and age. players into payers. on social networking sites. sale depends on genre and age. players into payers. Page 2 Page 3 Page 4 Page 2 Page 3 Page 4 Pricing virtual goods: Vanity goods and Durable goods and Pricing virtual goods: Vanity goods and Durable goods and price points functional goods consumable goods price points functional goods consumable goods Common virtual goods prices D ifferent genres emphasize L imited number of uses or Common virtual goods prices D ifferent genres emphasize L imited number of uses or are $0.20, $2.00 and $6.80. different types of goods. expiration time? are $0.20, $2.00 and $6.80. different types of goods. expiration time? Page 5 Page 6 Page 7 Page 6 Page 7 Page 9 Pricing and bundling Research Pricing and bundling Research virtual currencies methodology virtual currencies methodology Quantity discounts and typical Based on manually collected Quantity discounts get players Based on manually collected currency package sizes. data on over 3,000 products. to commit while enthusiastic. data on over 3,000 products. Page 8 Page 9 Page 11 Page 13
  3. 3. Overview1. What is money?2. What kind of an object makes a good money?3. Efficiency is boring, let’s design bad money
  4. 4. What is money?1. Medium of exchange2. Store of value3. Measure of value
  5. 5. MONEY =
  6. 6. Habbox.com 3 Jan 2007
  7. 7. CS =Habbox.com 3 Jan 2007
  8. 8. “Real” money vs “virtual” money
  9. 9. “Real” money vs “virtual” money●Currency area = total set of goods andservices payable with a currency● Large currency area -> “real” money● Small currency area -> “virtual” money
  10. 10. Designing money≠ designing marketsDesigning markets Designing moneyHow do you obtain the money? What shape, form or appearanceEarn through play? Purchase? does the money take?What can you spend the money What behaviors does the moneyon? User-to-user? User-to-NPC? as an object have?Can you redeem the money back How do people interact with theto national currency? money?
  11. 11. What is good money?Something that is... ...a good medium of exchange ...a good store of value ...and a good measure of value
  12. 12. A good store of valueA good medium ofexchange is durableis fungible is resistant against theftis divisible is inexpensive to storeis readily countable is privateis recognizable retains its valueis convenient A good measure ofis valuable value has a constant value
  13. 13. Designing bad money● Efficiency is boring● Games are about challenges; onlinegames are also about social interaction● Shouldn’t your money present somechallenges and encourage socialinteraction?
  14. 14. World’s most efficient virtualeconomy
  15. 15. A bad medium of exchange is...Not verydivisible Stone money of the island of Yap
  16. 16. CS = = 75 RDHabbox.com 3 Jan 2007
  17. 17. A bad medium of exchange is...Not fullyfungible
  18. 18. German coin balance and weights, 1765
  19. 19. A bad medium of exchange is...Misrecognizable = currency = super rare item, worth ~300
  20. 20. Ancient Chinese money, 7-22 CE Chinese knifemoney, 600-200 BCE
  21. 21. A bad medium of exchange is...Troublesometo move
  22. 22. A bad store of value is...Vulnerableto theft
  23. 23. A bad store of value is...Costly tostore
  24. 24. A bad store of value is...Perishable
  25. 25. “Oh, blessed money which yieldeth sweete and profitable drinkefor mankinde, and preserveth the possessors thereof free fromthe hellish pestilence of avarice because it cannot be long keptor hid underground” –Anghiera (1457-1526)
  26. 26. A bad store of value is...Not veryprivate● Public● Flauntable
  27. 27. The 8 attributes of a bad money 1. Not very divisible 5. Vulnerable to theft 2. Not fully fungible 6. Expensive to store 3. Misrecognizable 7. Perishable 4. Troublesome to move 8. Public/flauntable
  28. 28. All money must be...Valuable= can be used as payment for other goodsand services
  29. 29. 4 ways to make money valuable Commodity • gold, squirrel pelts money • Habbo sofas, TF2 keys Representative • gold certificates money • Digital Gold • dollar, euro, Ultima Online gold Fiat money • EverQuest plat • gift cards, IOUs, Nexon NX Scrip money • Facebook Credits
  30. 30. A good store of value...Retains its value= does not significantly depreciate inexchange value over time → must also be resistant against counterfeiting
  31. 31. A good measure of value has a...Constant valueDoes notsignificantlydepreciate norappreciate inexchange valueover time
  32. 32. Summary● Money is a medium of exchange, a store of value, anda measure of value● Good money has attributes that make an economy runsmoothly and efficiently● We can reverse the attributes to design bad money thatadds challenge and social interaction to game economies,and can help balance them● All money must nevertheless have exchange value
  33. 33. .comPromo code: GDC2012 Thanks for listening! Slides will be posted online @ViliLe @VEconomists
  34. 34. Image credits● 3: Cousseran & Rahmouni (2005) The CDO market.Banque de France.● 16 & 22: English Wikipedia: Eric Guinther (2002)● 19: Gilai Collectibles● 21: English Wikipedia: PENG Yanan (2006); Flickr: (CC)Woody1178a (2010)● 30: Flickr: (CC) Sifu Renka (2008)

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