Valve Software Appoints In-House Economist

[James]

http://www.forbes.com/sites/danielnyegr ... economist/

Proof if proof were needed that Valve Corporation, the games and software publishing company which has already effectively redrawn the map of PC games retail with its Steam digital store and made CEO and founder Gabe Newell a billionaire, is on its way to nation status: they have hired an in-house economist to examine the way its global economies – the fundamental currencies of which are the downloadable game and the in-game hat, one presumes – function and could interrelate.

Yanis Varoufakis, a 51-year old political economist at the University of Athens, who has also taught in Britain, the US and Australia, describes his recruitment in the opening blog post of the the new Valve Economics blog:
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When I read the opening line of the email [from Gabe Newell], my finger almost pushed the delete button:

“I’m the president of a videogame company (www.valvesoftware.com).”

I thought to myself: Oh, not another “business proposal” from a crackpot… However, something in my head stopped my finger from pressing DEL while my eyes pondered the next line:

“We are running into a bunch of problems as we scale up our virtual economies, and as we link economies together. Would you be interested in consulting with us?”

I was intrigued. The finger retreated from the keyboard’s right hand side and I read on:

“I have been following your blog for a while… Here at my company we were discussing an issue of linking economies in two virtual environments (creating a shared currency), and wrestling with some of the thornier problems of balance of payments, when it occurred to me “this is Germany and Greece”, a thought that wouldn’t have occurred to me without having followed your blog. Rather than continuing to run an emulator of you in my head, I thought I’d check to see if we couldn’t get the real you interested in what we are doing.”

Varoufakis, who as a Greek economist has found himself heavily sought after for comment in recent months, found his curiosity piqued, and took advantage of an upcoming trip to the US to drop in on Valve’s headquarters. Like so many others, he arrived to look around and was almost immediately recruited.

States of play

Varoufakis is not the first economist in residence appointed by a game company – the Icelandic economist Eyjólfur Guðmundsson was recruited by CCP Games. Economists from nations which have recently experienced some form of economic meltdown seem to be popular choices; CCP Games is also, of course, based in Rekjavik; although the chaotic economic systems of it’s Eve Online, which revolve around opening fire as much as opening markets, might suit a somewhat collapsonomic approach. However, the sheer scale of Valve’s user base, and the possibility of economic transactions across many different games (games not produced by Valve Software already offer cross-promotions through steam, often involving the unlocking of hats with which to personalize characters in the popular – and free to play – multiplayer shooter Team Fortress 2) makes this an intreresting appointment.

And the attraction for Varoufakis of leaving the real world for the economics of imaginary ones? The ability to exert godlike authority over a relatively closed system:

Econometrics purports to test economic theories by statistical means. And yet what it ends up testing is whether some ‘reduced form’, an equation (or system of equations), that is consistent with one’s theory, is also consistent with the data. The problem of course is that the ‘reduced form’ under test can be shown to be consistent with an infinity of competing theories. Thus, econometrics can only pretend to discriminate between mutually contradictory theories. All it does is to discover empirical regularities lacking any causal meaning. To put it bluntly, it is impossible to avoid absurd conclusions such as “Christmas is explained by a prior increase in the demand for toys”. And when we do (avoid them), it is only by accident (or because of a good hunch), as opposed to scientific rigour.

And the reason for this unavoidable failure? None other than our inability to run experiments on a macroeconomy such as rewinding time to, say, 1932, in order to see whether the US would have rebounded without the New Deal (or to 2009 to see what would have happened to the US economy without Ben Bernanke’s Quantitative Easing). Even at the level of the microeconomy, keeping faith with the ceteris paribus assumption (i.e. keeping all other things equal in order to measure, e.g., the relationship between the price of and the demand for milk) is impossible (as opposed to just hard).

In sharp contrast to our incapacity to perform truly scientific tests in ‘normal’ economic settings, Valve’s digital economies are a marvelous test-bed for meaningful experimentation. Not only do we have a full-information set (making sampling superfluous) but, more importantly, we can change the economy’s underlying values, rules and settings, and then sit back to observe how the community responds, how relative prices change, the new behaviural patterns that evolve. An economist’s paradise indeed…

Put like that, one can see the attraction. This is another interesting move by Valve, and will at the very least create, I am sure, some fascinating analyses of the growing economies of virtual worlds, and what happens when the virtual rubber meets the real-world road. Now, if only id Software would get their own economist, so I can use that “Profits of Doom” headline…

[James]

http://blogs.valvesoftware.com/category/economics/

[Aidan]

Read this all. Great article.


Valve has an odd way of operating, and it works.

[Psychotic]

Their method of operating works for them, it's debatable whether it'd work for other companies.

Valve is in a position that most other developers aren't: They are independent. They don't rely on things like publishers to release their titles and so they have much more freedom because of it.

[Siva]

I think it's less about Valve having the position or the unique approach, more that other companies simply have no use for economists or already have them.

[Psychotic]

I'm not really seeing the big deal about it, frankly.

To the average gamer it's probably going to mean nothing. To me, it means nothing.