The Economically-(Im)Perfect World of Online Games

Kristian Segerstrale–owner of online games company Playfish (acquired by Electronic Arts for $400m in November 2009)–discusses why online game environments are exciting places for economics research (and specifically: “how social factors influence economic decision making”):

When economists try to model behavior in the real world, they’re always dealing with imperfect information. “The data is always limited, and once you get hold of it there are tons of reasons to mistrust it,” Segerstrale says. In virtual worlds, on the other hand, “the data set is perfect. You know every data point with absolute certainty. In social networks you even know who the people are. You can slice and dice by gender, by age, by anything.”

Instead of dealing only with historical data, in virtual worlds “you have the power to experiment in real time,” Segerstrale says. What happens to demand if you add a 5 percent tax to a product? What if you apply a 5 percent tax to one half of a group and a 7 percent tax to the other half? “You can conduct any experiment you want,” he says. “You might discover that women over 35 have a higher tolerance to a tax than males aged 15 to 20—stuff that’s just not possible to discover in the real world.”

Of course, there’s a fairly obvious caveat:

One possible flaw in this economic model is that the kind of people who spend hours online taking care of imaginary pets may not be representative of the rest of the population. The data might be “perfect” and “complete,” but the world from which it’s gathered is anything but that.