Behavioral Economics in MMOs, Part 1

Lately, I’ve been reading Predictably Irrational by Dan Ariely, a book on the relatively new science of behavioral economics. Classical economics states that, given all necessary information, people and therefore markets will behave rationally and in their own best interests. However, behavioral economics states that people will very often behave irrationally, and that we must modify economic theory based on that irrationality. The most interesting point, to me, and the one that the book takes its name from, is that, while people may behave irrationally in regards to economic choices, they do so in a predictable fashion. Okay, it’s interesting, but what does it have to do with MMOs? A lot, as it turns out.

Behavioral economics can be applied, of course, to things like auction houses and other “pure” economic ideas in games. This is the probably the easiest entry point for explaining some of the basics, so bear with me for a little bit; I assure you, there will be more to this than how to game the market in your favorite MMO and make the most of your phat lewts. I should state that many of these examples will be drawn directly, or slightly modified, from Professor Ariely’s book; I can’t recommend it highly enough if you have any interest in this kind of thing.

Let’s begin with the concept of relativity. Imagine that you have two errands to run for the day, buying a suit and buying a new pen. You find a place selling the pen you want for $25, but you know there’s another place 15 minutes away selling it for $18. Something similar happens when you go to buy your suit: The place you’re at has it for $455, but there’s a place 15 minutes away that has it for $448. Do you travel to get the lower price on either? Both? Neither?

If you said “both” or “neither,” then you are more likely to be acting rationally. The savings in both cases is $7. However, most people will instinctively travel to save on the pen, but not for the suit, because the percentage difference is so small in the case of the suit, while it’s so great in the case of the pen, that it overpowers rational economic thoughts. In either case, $7 should either be worth or not worth your time.

Take a look at how you behave when playing on an alt on a server where you’ve already got an established main in WoW. When you start out, you have the usual 16 slots of bagspace, and it rapidly begins to fill up with quest items and vendor trash. How often have you stood there for a minute, trying to figure out whether to throw out the scorpid husk (3 coppers, but it stacks up to 5) or the warped staff (9 coppers), when you’ve got a character, on the same server, that can walk 30 paces out the door of the inn in Zangarmarsh and make 100 times either of those amounts by killing an animal or two? And likely can do it in the time that you’ve been dithering over a couple of coppers? Players get it stuck in their head that figuring out the loot to carry on their current character matters, when it’s ultimately a means to an end, in game terms.

This brings us to the idea of anchor prices: points where we get stuck on the idea of a certain item costing or being worth X because of how we think about it. In a study mentioned in the book, researchers had students take the last two digits of their social security numbers and think about whether they would be willing to pay that much in dollars for each of four items (one bottle of good wine, one bottle of okay wine, a nice keyboard and an decent but not great mouse) . In other words, if the last two digits of their social was 23, would they pay $23 for the good bottle, would they pay $23 for the okay bottle, etc. They then auctioned off the items. Generally, people did not pay more than they said they would. However, the interesting bit is that the participants with the higher last two digits would generally pay more for the items than those with the lower digits, because they had thought about the items in relation to higher prices.

For an example of this in action in MMOs, a new server recently opened up in WoW that won’t allow any transfers for 6 months. In other words, all of the characters on the server are brand new; I played on it the first night, and there were several hundred gnomes and dwarves running around the starting area. We were all very impressed when a level 12 human warrior ran by only a few hours after the server opened up. In other words, the server should have had nowhere near the inflation that established servers had, simply because no one had any money. However, when one went to look at the auction house, there were still people attempting to get, for example 20+ silver for stacks of linen cloth, presumably because that’s how much they could get on their home server. In other words, they had attached to 20s as the price for a stack of linen cloth.

More next time, including the economic effects of naked night elves and the psychology of ninja looting. Then, on to how to fix MMOs forever! Maybe.

2 thoughts on “Behavioral Economics in MMOs, Part 1”

  1. I really enjoyed your post today. It’s actually inspired me to check out the book you mentioned. How hard of a read is it? Is it filled with goodness that you talked about in your article?

  2. I’m glad you enjoyed the post. I found the book to be a pretty easy read, maybe an afternoon’s worth if you’re a fast reader.

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