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Dr. Eyjolfur Gudmundsson, the Lead Economist at CCP, developer of EVE Online, talks about the impact of what’s essentially a real-world economy in a virtual world.

by Eyjolfur Gudmundsson, PH.D. on Tuesday, October 14, 2008

It has been over 30 years since online virtual worlds have started to emerge in the form of MUDs (Multi-User Dungeons). Over this time period several variants of virtual worlds have emerged, with each form having different opportunities and challenges for the developers.

Only in the last five years or so have virtual worlds attained the attention of the general media, where they are often simplistically categorized as virtual realities. The general media then often tries to measure or categorize these virtual realities by finding commonality with real life – trying to understand these new realities by comparing them to our daily lives, our own reality.

This often leads to misunderstandings about what virtual worlds really are. It is true that some virtual worlds are simply an extension of real life. One can even assert that the entire Internet is a virtual world where people come together to share information and to communicate with each other. However, the largest virtual worlds that are out there are worlds that offer you a different experience – giving the user the opportunity to participate in another world, another universe. This participation is just as rewarding and real as the experience that we have in our daily lives but these worlds are not and should not be reality. These worlds are the game worlds of the Internet – massively multiplayer online games or MMOs in short.

Maybe he can help America solve its financial crisis?

MMOs can be defined as closed worlds since they offer access to a fantasy or sci-fi environment that have no direct link to our real life. Hence, these alternate universes are an addition to our real life, not an extension, and they enhance and improve it.

EVE Online is a single shard universe that offers those who participate in that world a rewarding experience. One feature that is often highlighted as the most unique thing about EVE Online is the vibrant economy that thrives within it – often quoted as a realistic experience. Stating that the economy in EVE is realistic is wrong. The economy in EVE is actually just as real as our real life economies, by all measures and definition of economic value based on economic theory. This fact has great implications in terms of how to interpret information from economies in virtual worlds, and shows that economics must be used as a fundamental feature in the design and operation of these worlds.

What makes the economy in EVE real is the fact that without player production of spaceships, ammunition, modules and other items, there would be no EVE. Everything produced and consumed in EVE is based on players’ preferences and their valuation of those items. The players are real and hence their valuation is real.

These decisions evolve around production, trade, war and politics – the same ingredients that we have in all other societies created by mankind. EVE is therefore truly an alternate universe where people are making decisions that affect other people who participate in the same universe.

This level of complexity is only possible due to the single world (single shard) approach in the design of EVE Online. Everyone who participates in EVE Online is participating in the same world with almost a quarter of a million total subscribers and anywhere between 30,000 to 40,000 of them playing at any given time. Hence the action of one player has the potential to impact the virtual well-being of another player. Players are also dependent on each other for the production of goods and services that help you survive in the harsh environment of EVE. And the harsh environment leads to decisions that have real impact on your own well-being. In EVE you are always at risk of losing your ship, your training and items that you carry around with you. And even though it is possible to minimize the financial loss through insurance services, you still know that any action in EVE bears an element of risk. This results in different kinds of behavior amongst the players based on their own risk awareness. Hence, we have players that like to specialize in different professions within EVE ranging from industrial activities to fleet fights and even space piracy.

In 1776 Adam Smith wrote that in order to increase wealth, nations must focus on increasing specialization of the workforce and encourage the formation of markets and external trade activities. This same principle applies in a large-scale virtual world like EVE Online. The environment must be designed from the beginning with economic principles in mind. One of the reasons for the success of EVE Online is that the developers had a clear vision of a large player-driven economy. The initial design accommodated tools and structures that would allow for dynamic trade activities where the key to success would be information. This also meant that in the early stages of the game, before the player population reached a critical mass, a different management method of the market was needed than what is in place today. In the beginning, the developers had to be “hands on” with many aspects of the market, making sure that there was enough supply and demand for various items in the game. However, with the current population size the market has become completely player-driven. This means that the developers now approach the management of the economy with a laissez-faire attitude – only intervening if there are obvious game balance issues that must be addressed.

With such a different and diverse population of players within a single world, it becomes a challenge to make sure that the developer is able to communicate with the population about future development of the virtual world. But the single universe approach allows CCP, as developers of EVE, to approach this challenge in a very innovative and unique, yet classical way.

In order to make sure that CCP listens to the voices of those that participate in the EVE experience, a democratically-elected representative council of players was established earlier this year. This is the Council of Stellar Management (CSM). It has the obligation of bringing the most pressing issues from the community to CCP’s development team. There are nine representatives on this council and each term is six months. The first council will end its term this November. We at CCP have been very pleased with the communication with this new council and many of the issues that they have brought forward will impact the current and future development of EVE Online. The best measure for the success of the CSM is that preparations for the next elections are already under way.

Conclusion
EVE Online is an alternate experience that enhances the real life of those who participate in this world. It is a vast, complex universe that is designed as a sandbox and allows its participants to determine what kind of experience they will have within its confines. In the five years that this world has been in operation, it has really evolved to become a virtual society with all the same basic social structures that have been found in all societies created by mankind, such as a complex economic system that produces real economic value, territorial warfare and politics. Are we perhaps seeing the birth of the first virtual nation?