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Book of the Day: Virtual Economies

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24th October 2014

* Book: Vili Lehdonvirta with E.Castronova. Virtual Economies: Design and Analysis. MIT Press, 2014

URL = http://mitpress.mit.edu/books/virtual-economies

aims to bring virtual economies to the attention of social scientists, and secondly to help digital designers use social science and economics scholarship when designing their virtual economies.



By Vili Lehdonvirta:

“Digital gaming, once a stigmatized hobby, is now a mainstream cultural activity. According to the Oxford Internet Survey, more than half of British Internet users play games online; more in fact, than watch films or pornography online. Most new games today contain some kind of a virtual economy: that is, a set of processes for the production, allocation, and consumption of artificially scarce virtual goods. Often the virtual economy is very simple; sometimes, as in massively multiplayer online game EVE Online, it starts to approach the scale and complexity of a small national economy.

Just like national economies, virtual economies incentivize certain behaviours and discourage others; they ask people to make choices between mutually exclusive options; they ask people to coordinate. They can also propagate value systems setting out what modes of participation are considered valuable. These virtual economies are now built into many of the most popular areas of the Internet, including social media sites and knowledge commons — with their systems of artificially scarce likes, stars, votes, and badges. Understanding these economies is therefore crucial to anyone who is interested in the social dynamics and power relations of digital media today.

But a question I am asked a lot is: what can ‘real’ economies and the economists who run them learn from these virtual economies? We might start by imagining how a textbook economist would approach the economy of an online game. In EVE Online, hundreds of thousands of players trade minerals, spaceship components and other virtual commodities on a number of regional marketplaces. These marketplaces are very sophisticated, resembling real commodity spot markets.

Our economist would doubtless point out several ways its efficiency could be radically improved. For example, EVE players can only see prices quoted in their current region, likely missing a better deal available elsewhere. (In physical commodity markets, prices are instantly broadcast worldwide: you wouldn’t pay more for gold in Tokyo than you would in New York.) Our economist knows that providing more information to market participants increases the market’s efficiency, and might therefore suggest modifying the game such that all players gain instant and galaxy-wide access to the same price information. This would improve the overall efficiency of the galactic market.

This change would obviously be a blow to those players who have specialized in gathering and trading this price information. It would also reduce the opportunities for arbitrageurs: players who rummage the galaxy for underpriced goods, transporting them to regions where they will fetch a profit. Of course, these players could always turn themselves into haulers, the space equivalent of truck drivers. Increased efficiency would probably increase cross-regional trade, meaning a boom-time for haulers.

But wait – realizing the infinite malleability of virtual economies, the textbook economist might decide to eliminate regions altogether. Distance is what economists refer to as a transaction cost: the economy would run much more efficiently without the need to transport things around. In a virtual environment goods and characters could be instantly teleported, or the galaxy simply collapsed into a single, dimensionless point. The efficiency of the virtual economy would certainly be greatly improved. But who would pay a subscription fee to participate in such a boring economy!

Why did our strawman economist make such a horrible mess of the game economy? Conventional economic laws are work equally well in virtual environments: the equilibrium price of a commodity in a competitive market is determined by the interaction of supply and demand, regardless of whether you are in the market for magic swords or soya beans. The crucial difference is in the objectives the economy is intended to fulfil. When conventional economists design and analyse economies, they take it as read that the purpose of the economy and its institutions is to solve the so-called economic problem: the allocation of limited resources so as to best satisfy human needs. Microeconomists do this by designing mechanisms that are as efficient as possible, while macroeconomists are concerned with maximizing economic output.

But in game economies, the economic problem doesn’t really exist. The needs that players experience are contrived, created by positioning otherwise useless goods (magic swords) as desirable status items. The scarcity of resources is likewise artificial, enforced through programme code. If games designers wanted to solve the economic problem, they could do it with a few keystrokes; no markets or other economic institutions are required for this purpose.

Different multiplayer game economies have different aims, but one key objective stands out: the economy helps create and hold together the social fabric of the game. Regular interaction generates interpersonal ties and trust. Having people consume the fruits of one’s digital labour generates a sense of meaning, a sense of a role to play in the community. Division of labour and the resulting mutual interdependence moreover creates solidarity and social cohesion. In short, the economy can act as a wonderful glue holding people together.

The social fabric is important to game developers, because the stronger the ties between players, the longer the players will keep playing (and paying fees). Some games developers expend considerable resources in their own style of economic research, experimenting with different exchange mechanisms and institutions to find the designs that really strengthen the social fabric. When we examine the resulting virtual economies we can see that their design choices are often very different from the choices that a conventional economist would make.

I will give an example. One aspect of designing a market is designing an exchange mechanism: the concrete mechanism through which the buyer and the seller meet, settle on a price and quantity, and execute the transaction. The simplest exchange mechanism is two people meeting face to face to negotiate a trade, and then exchanging the goods on the spot. A more sophisticated mechanism is an online auction, like eBay. Stock markets use an even more sophisticated mechanism, where participants submit buy and sell offers, these are matched by an algorithm, and trades are executed automatically.

Given that many exchange mechanisms are possible, what kind of an exchange mechanism should be build into your market? When governments and companies create markets they usually turn to microeconomists specializing in this kind of mechanism design. The microeconomist’s answer is that you should choose the exchange mechanism that is most efficient, in the sense of allocating goods optimally and minimizing all transaction costs: in the best case it may not even be necessary for the buyer and the seller to know each others’ identities.

Games economists, in contrast, tend to favour exchange mechanisms that involve social interaction; often through a virtual face-to-face meeting, where the tedious parts (explaining item characteristics) are automated, but negotiation over prices and quantities is conducted manually. Some locations in the virtual world often spontaneously emerge as sort of bazaars, where buyers and sellers congregate to search for deals. These double as social hubs where people come to meet friends and put on performances and displays, thereby building social capital. One might later consider one’s trading acquaintances when putting together a team for some quest.

More sophisticated exchange mechanisms, such as auction houses and the commodity spot markets in EVE Online, are also common in games, but they also avoid completely displacing social trade networks. In EVE Online, players must either move around in space or use their social networks to obtain price information from neighboring localities. This way, EVE Online’s developers have struck a balance between efficiency and social ties. One thing that virtual economies can teach is to look for other objectives besides efficiency and output as variables that need to be maximized in an economic system.

I would argue that a focus on social fabric — rather than just on efficiency and output – can usefully inform national economies. First, in today’s affluent societies, we are close to solving the economic problem: in the United Kingdom or the United States the need for life-sustaining material basics is all but fulfilled. Keynes predicted 90 years ago that the economic problem will be solved within 100 years; in the affluent parts of the world, it looks like he may have been right. The greatest problem faced by the UK and US today is not the economic problem, but the disintegration of the social fabric. Virtual economies show how economic institutions could be arranged so as to strengthen it.

Second, even in that greater part of the world where the economic problem still remains acute, it is not the case that we should focus on it exclusively. Poor countries should not have to go through social disintegration to reach economic affluence. Third, as I have already mentioned, games and virtual economies have become significant phenomena in their own right. Their creators are smart people who have developed many economic insights of their own. They are eager for knowledge on how to better design and operate these economies, but conventional economic advice that focuses solely on efficiency fails to address their needs. Economists and economic sociologists should widen their research to develop answers that satisfy the needs of virtual economy designers – and also of a more ‘social’ national economy.

Now, to be fair, the fact that markets and other modern economic institutions can serve important social functions has been known to sociologists since Émile Durkheim. But this has been regarded as something of a side effect, and certainly not the purpose for which these institutions are created. Game economies are radical in this respect – that they are created entirely to serve these other functions, rather than any material function. Economic anthropologist Karl Polanyi argued in The Great Transformation that in the transition from a traditional to a market society, social structure was rearranged to serve the needs of the economy. What game economies do is in some ways the opposite: they rearrange the economy to serve the needs of the social structure. And that would seem to be a very worthwhile endeavor.” (http://blogs.oii.ox.ac.uk/policy/economics-for-orcs-how-can-virtual-world-economies-inform-national-economies-and-those-who-design-them/)


Posted in Featured Book, Gift Economies, Open Hardware and Design | No Comments »

Video of the Day: 3 hacks for a resource-based economy

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Michel Bauwens
23rd October 2014

From the notes to the video:

The Zeitgeist Movement Ecuador invited Michel Bauwens to talk about a possible transition towards a Resource-based economic model and the “hacks” he proposes to achieve this (edited to include English audio only).

Michel Bauwens:

In this video I explain how, through the Commons-Based Reciprocity License, one can create an ethical entrepreurial coalition which co-produces commons, and which can, through the adoption of open book accounting and shared open logistics, move the ‘stigmergic’ mutual coordination which already exists for the production of immaterial goods (knowledge, code, design), to physical production itself.

This is a quote from our latest book, ‘Network Society and Four Scenarios for the Collaborative Economy‘, which touches on that issue:

“Through the ethical economy surrounding the Commons, by contrast, it becomes possible to create non-commodified production and exchange. We thus envision a resource-based economy which would utilize stigmergic mutual coordination through the gradual application of open book accounting and open supply chain. We believe that there will be no qualitative phase transition merely through emergence, but that it will require the reconstitution of powerful political and social movements which aim to become a democratic polis. And that democratic polis could indeed, through democratic decisions, accelerate the transition. It could take measures that obligate private economic forces to include externalities, thereby ending infinite capital accumulation.”


Posted in Activism, Culture & Ideas, Events, Featured Content, Featured Video, Original Content, P2P Foundation, P2P Subjectivity, Politics | No Comments »

Evolutionary Biologist Divulges The Secret To Human Coexisting

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Kevin Flanagan
23rd October 2014

Luke Rudkowski of We Are Change in Majorca, Spain talks with Evolutionary Biologist and Futurist Elisabet Sahtouris about her life’s work. She studied algae which covered Earth in its first 2 billion years to find that there’s a maturation cycle of all life, wherein the costs of competition are too high and the solution for survival is cooperation. She is now applying her finding to the study of the evolution of human society.


Posted in Culture & Ideas, Featured Person, Videos | No Comments »

Book of the Day: Small is Beautiful

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22nd October 2014

* Book: E. F. Schumacher. Small Is Beautiful: Economics as if People Mattered. 1973



Maria Popova:

” a magnificent collection of essays at the intersection of economics, ethics, and environmental awareness, which earned Schumacher the prestigious Prix Européen de l’Essai Charles Veillon award and was deemed by The Times Literary Supplement one of the 100 most important books published since WWII. Sharing an ideological kinship with such influential minds as Tolstoy and Gandhi, Schumacher’s is a masterwork of intelligent counterculture, applying history’s deepest, most timeless wisdom to the most pressing issues of modern life in an effort to educate, elevate and enlighten.” (http://www.brainpickings.org/index.php/2014/07/07/buddhist-economics-schumacher/)


Posted in Ethical Economy, Featured Book, P2P Lifestyles | No Comments »

Video of the Day: Dilar Dirik, Kurdish Women’s Movement

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21st October 2014

Dilar Dirik, Kurdish Women’s Movement at the New World Summit Brussels, 2014. http://vimeo.com/107639261.

At the New World Summit in Brussels (2014), Dilar Dirik, an activist with the Kurdhish women’s movement, and doctoral scholar discusses the conditions under which the PKK operates in the three autonomous cantons in northern Iraq, near the borders of Turkey and Syria. Currently, the region is under assault from Islamic State forces. Her thesis is the unnecessary imposition of the nation-state system in favor of the Stateless State and the role women play, on the front lines, and in society. States are inherently oppressive and violent and under oppressive, statist systems women play the role of reproducers of the state system. There must be emancipation in a meaningful way. In the region around Kobane, the cantons show a resiliency to exist and to maintain a peaceful and democratic system, which is multicultural, within a hostile region both from Turkey and now the Islamic State or “the disgusting mentality which calls itself the Islamic State” which they have been fighting for two years but a conflict which has only just made news, recently. She reports that 70,000 had been displaced in the first 24 hours of fighting.


Posted in Activism, Featured Video, P2P Warfare | No Comments »

Video of the Day: Michel Bauwens on why the P2P Foundation supports Fair.coop

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Stacco Troncoso
20th October 2014

This video interview between me and Michel Bauwens was filmed by our associate Kevin Flanagan and recorded at a break during the Open Everything Convergence held in the Cloughjordan Ecovillage in Tipperary, Ireland. In the video Michel explains why the P2P Foundation supports Fair.coop and its unheard-of experiment to create a new global economic system.

How do they intend to achieve this? By taking the most desirable characteristics of cryptocurrencies while palliating their shortcomings by embedding the whole project within a transnational, P2P and Commons oriented Open Co-op. You can find out more about Fair.coop in their very comprehensive website.



Posted in Commons, Cooperatives, Culture & Ideas, Economy and Business, Ethical Economy, Featured Content, Featured Video, Guest Post, Media, P2P Collaboration, P2P Foundation, Videos | 1 Comment »

Book of the Day: The Squatters’ Movement in Europe

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19th October 2014

Book: The Squatters’ Movement in Europe. Commons and Autonomy as Alternatives to Capitalism. Squatting Europe Kollective. Pluto, 2013

URL = http://www.plutobooks.com/display.asp?K=9780745333953



“The Squatters’ Movement in Europe is the first definitive guide to squatting as an alternative to capitalism. It offers a unique insider’s view on the movement – its ideals, actions and ways of life. At a time of growing crisis in Europe with high unemployment, dwindling social housing and declining living standards, squatting has become an increasingly popular option.

The book is written by an activist-scholar collective, whose members have direct experience of squatting: many are still squatters today. There are contributions from the Netherlands, Spain, the USA, France, Italy, Germany, Switzerland and the UK.

In an age of austerity and precarity this book shows what has been achieved by this resilient social movement, which holds lessons for policy-makers, activists and academics alike.”


Posted in Campaigns, Featured Book, Peer Property | No Comments »

Podcast of the Day: Rachel O’Dwyer on the Role of Commons in Contemporary Capitalism

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Stacco Troncoso
18th October 2014

We met Rachel O’Dwyer a couple of weeks back, at the Open Everything 2014 Convergence, celebrated in Cloughjordan Ecovillage, Ireland. We really enjoyed talking to Rachel and listening to her contributions in the Q&As and, in fact, we’re hoping to work with her in the near future. Until then, please check out this podcast, originally published as part of a series called “Contemporary Capitalism”

From the Shownotes to the Podcast:

Contemporary Capitalism is a 4 part series of talks, each part critiquing an aspect of how capitalism affects society today.

The talks were originally held in Dubzland studios, north inner city Dublin, in late 2012, and were organised by the Provisional University, a group of researchers and social activists. [www.provisionaluniversity.wordpress.com]

The series was edited for broadcast by artist and Near FM volunteer Craig Cox. [www.craigcoxart.com]

Contemporary Capitalism Part 4: The Commons

Part 4 is by Rachel O’Dwyer and is about the commons as it exists today.


Posted in Collective Intelligence, Commons, Culture & Ideas, Featured Content, Featured Podcast, Media, Networks, Podcasts | No Comments »

Book of the Day: Digital Solidarity

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18th October 2014

Book: Digital Solidarity. Felix Stalder. Mute Books and Post-Media Lab, 2013



“Felix Stalder’s extended essay, Digital Solidarity, takes its point of departure from the waves of new forms of networked political organisation which have met the onset of the global economic crisis of 2008. Following Karl Marx, Stalder lays out how in the current period there are emergent contradictions between applied innovation and technical progress and the economic institutions whch organise or restrain this progress. The contradictions between forces of production and relations of production are placed in a context in which we have left McLuhan’s Gutenburg Galaxy behind for good and the struggles over where we will arrive are only just beginnning. A co-publication of Mute Books & the Post-Media Lab.”




Posted in Featured Book, P2P Governance, P2P Public Policy, P2P Theory | No Comments »

Why is the world ignoring the revolutionary Kurds in Syria?

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Kevin Flanagan
17th October 2014

The PKK ‘has adopted the vision of “libertarian municipalism” calling for Kurds to create self-governing communities, based on principles of direct democracy’

Extract from the article by David Graeber http://www.theguardian.com/commentisfree/2014/oct/08/why-world-ignoring-revolutionary-kurds-syria-isis

In 1937, my father volunteered to fight in the International Brigades in defence of the Spanish Republic. A would-be fascist coup had been temporarily halted by a worker’s uprising, spearheaded by anarchists and socialists, and in much of Spain a genuine social revolution ensued, leading to whole cities under directly democratic management, industries under worker control, and the radical empowerment of women.

Spanish revolutionaries hoped to create a vision of a free society that the entire world might follow. Instead, world powers declared a policy of “non-intervention” and maintained a rigorous blockade on the republic, even after Hitler and Mussolini, ostensible signatories, began pouring in troops and weapons to reinforce the fascist side. The result was years of civil war that ended with the suppression of the revolution and some of a bloody century’s bloodiest massacres.

I never thought I would, in my own lifetime, see the same thing happen again. Obviously, no historical event ever really happens twice. There are a thousand differences between what happened in Spain in 1936 and what is happening in Rojava, the three largely Kurdish provinces of northern Syria, today. But some of the similarities are so striking, and so distressing, that I feel it’s incumbent on me, as someone who grew up in a family whose politics were in many ways defined by the Spanish revolution, to say: we cannot let it end the same way again.

The autonomous region of Rojava, as it exists today, is one of few bright spots – albeit a very bright one – to emerge from the tragedy of the Syrian revolution. Having driven out agents of the Assad regime in 2011, and despite the hostility of almost all of its neighbours, Rojava has not only maintained its independence, but is a remarkable democratic experiment. Popular assemblies have been created as the ultimate decision-making bodies, councils selected with careful ethnic balance (in each municipality, for instance, the top three officers have to include one Kurd, one Arab and one Assyrian or Armenian Christian, and at least one of the three has to be a woman), there are women’s and youth councils, and, in a remarkable echo of the armed Mujeres Libres (Free Women) of Spain, a feminist army, the “YJA Star” militia (the “Union of Free Women”, the star here referring to the ancient Mesopotamian goddess Ishtar), that has carried out a large proportion of the combat operations against the forces of Islamic State.

How can something like this happen and still be almost entirely ignored by the international community, even, largely, by the International left? Mainly, it seems, because the Rojavan revolutionary party, the PYD, works in alliance with Turkey’s Kurdish Worker’s Party (PKK), a Marxist guerilla movement that has since the 1970s been engaged in a long war against the Turkish state. Nato, the US and EU officially classify them as a “terrorist” organisation. Meanwhile, leftists largely write them off as Stalinists.

But, in fact, the PKK itself is no longer anything remotely like the old, top-down Leninist party it once was. Its own internal evolution, and the intellectual conversion of its own founder, Abdullah Ocalan, held in a Turkish island prison since 1999, have led it to entirely change its aims and tactics.

The PKK has declared that it no longer even seeks to create a Kurdish state. Instead, inspired in part by the vision of social ecologist and anarchist Murray Bookchin, it has adopted the vision of “libertarian municipalism”, calling for Kurds to create free, self-governing communities, based on principles of direct democracy, that would then come together across national borders – that it is hoped would over time become increasingly meaningless. In this way, they proposed, the Kurdish struggle could become a model for a wordwide movement towards genuine democracy, co-operative economy, and the gradual dissolution of the bureaucratic nation-state.

Continue to read the full article at http://www.theguardian.com/commentisfree/2014/oct/08/why-world-ignoring-revolutionary-kurds-syria-isis


Posted in Cooperatives, Featured Movement, P2P Movements, Politics | No Comments »