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Fishing With Dynamite

June 23, 2012

Yanis Varoufakis’ second blog post is up and it is considerably more technical than his first. He defines and explores the concept of Arbitrage and Equilibrium In The Team Fortress 2 Economy.  Armed with statistics for all sides of all equations, as provided in the air tight digital TF2 economy, he doesn’t need to do much guessing. He can show you exactly when the TF2 items were bought for a low price and resold for a high price, and how the market adjusted itself after each rush. For those of you who have never taken a course in economics, or for those of you like me who have forgotten most of what you did learn, his article serves as an excellent introduction/refresher for this chapter of economic theory.

Steam enables Valve’s gamers to trade freely with one another, effectively to establish a substantial economy in which thousands of items, also imaginable as assets, are exchanged for one another. This is a typical barter economy, in that every exchange necessitates a double coincidence of wants (i.e. when Jack offers Jill some Team Fortress 2 hat in exchange for a couple of keys, the trade will go ahead if, at the same time, Jill also prefers that particular hat to her two keys).

Barter economies are cumbersome precisely because they require this double coincidence of wants before any bilateral trade proceeds. For this reason, throughout history, whenever the number of transactions (and ‘assets’) grew in number, one of those assets soon emerged as a numéraire – a basic form of money that is. Once the numéraire acquired currency, suddenly the prerequisite of some double coincidence of wants vanished and people could trade anything for the numéraire–asset which they could then use in order to buy whatever else tickled their fancy. In short, as economies grew in sophistication, they ‘monetised’ and ceased functioning on the basis of barter. This is why never in history have we witnessed truly sophisticated barter economies (for reasons similar to why we have not developed hugely sophisticated training wheels for professional cyclists).

Initially, I had expected that a similar pattern would be replicated in digital economies, like Valve’s. I was expecting to find that some item or asset would emerge as currency in the context of games such as Team Fortress 2. However, a close study of our Team Fortress 2 economy revealed a more complex picture; one in which barter still prevails even though the volume of trading is skyrocketing and the sophistication of the participants’ economic behavior is progressing in leaps and bounds. (italics from original)

You wanna bet that all game publishers have made Varoufakis’ blog required reading for all their staff.  I will be very surprised if within a couple of years we don’t have some very creative and completely new economic models for monetizing our favorite hobby.   Right now, everyone including Valve is just casting their line out into the open water and then praying that they catch a fish.  With an expert analyzing the data and publishing his findings, that will change quickly.  With the help of Varoufakis’, Valve hopes to invent dynamite so they can toss it in and just scoop up the stunned fish as they bob to the surface.

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