Department of Telecommunications
iknowles 'at' indiana 'dot' edu
I am a native of Virginia, born and raised just outside of Washington, D.C. My fiancée and I just moved to Bloomington from Baton Rouge, Louisiana, where we were both graduate students at Louisiana State University. I had my first opportunity to work with Prof. Edward Castronova in summer 2011. It was a very productive and rewarding experience to say the least, and I enjoyed my stay in B-town. So, after a lot of consideration, I decided to leave the economics PhD program at LSU in order to pursue graduate studies here in the department of Telecommunications at Indiana University.
For six years, I've followed the serious study of video games, especially video game economics. My motivating thesis is that our economic interactions in real-life have concrete consequences for our virtual lives, and that the ebb and flow of virtual economies are increasingly feeding back into our real lives. If this is true, then we need to explore and develop practical methods of measuring these interactions in order to better inform the industry, policy makers, and researchers across the social sciences. We also need a better understanding of just what constitutes a virtual economy, and how that concept is evolving. With the guidance of Prof. Castronova, and the telecommunications faculty in general, I work on opening up these new areas of research.
Why should we care about this? What is the point of monitoring the economics of virtual worlds, of the industry that creates them, and of the policies that affect them? The reason is that virtual worlds are growing in importance for how we form and maintain our relationships with other people, and this growth seems to be accelerating. Families and friends separated by hundreds or thousands of miles now "hang out" with each other regularly in places like Second Life and World of Warcraft, or while playing Mafia Wars. Together they form alliances and perform feats of fantastic heroism or villainy, explore new places, and share many experiences that take place entirely in the virtual space. Just as our real-life relationships have facets that depend vitally on the state of the economy, the ability of people to work together, have fun, express themselves, and maintain their relationships with one another depends more and more on the smooth function of the virtual economy. So, virtual economies matter to individual and social welfare.
But that's not the only reason I pursue this work. With an exploding virtual population come more transactions involving virtual goods, services, and currencies. People are exchanging these things for one another and for their real-life counterparts. Questions are arising that are of great importance: who owns these things? Should they be taxed? What are the consequences of doing so? What are the responsibilities of sellers and the rights of buyers, and who will enforce them? Who will pay for that enforcement? What are the economic consequences of taxing and regulating these worlds for players, companies, governments, and societies? The answers to these questions depend upon careful analyses of economic and demographic data, both real and virtual, and yet so far there exists very little data- driven research in this area. Careful empirical, quantitative analysis is needed to fill this vacuum, and that is where I see my work fitting in.
Until quite recently, there was a dearth of cheap, reliable data on players and virtual economies, and especially individual transactions. Usually the best you could hope to see were a bunch of exchange rates from, say, Second Life's Lindens to US dollars, and this made economic research into games quite difficult. But times are changing. Innovative companies like Activision-Blizzard and CCP Games have
made available enormous amounts of data about their player base and/or their games' economies. Others, such as Electronic Arts and Sony Online Entertainment have partnered directly with academia and provided data for research. These and other game companies benefit from increased data distribution in the form of new knowledge about games that is generated by players and analysts, alike.
These changes have opened up three important opportunities for game economics, and this trifecta constitutes my research agenda. The first is video game telemetry – the measurement and analysis of player activity as it occurs within and around the game or the virtual world. This can include tracking the sale of virtual goods, either in the game or with real-world currencies. It also includes keeping track of what people do in the game, where they go, who they spend time with, how they compete, and how they use the world to have fun and enjoy themselves. It also involves keeping track of who they are in real-life, learning how to use those data to inform design, and understanding the extent to which virtual behavior maps into real behavior. The discovery of new methods of tracking and analyzing player behavior is an important part of this field, as well. A current project of mine that falls under this agenda is my work on identifying individual players from the online activities and locations of their avatars.
The second opportunity for research is by far the broadest, and is what I might call the "pure economics" of virtual worlds. It asks several important questions that are relevant for policy and industry analysis, such as:
- What determines the demand for a virtual world? What determine a player's willingness to pay for virtual goods, or for a subscription? What are the "virtual" determinants (i.e, the quality and cost of game play) vs. the "real-life" determinants of that demand (i.e. education, gender, income, etc.)?
- What determines the supply of virtual worlds? How do game companies compete for players? How do they incentivize players to stay? What strategies do they employ to foil their competitors? How much do they spend on research, or advertising, and why? Do large companies engage in collusion with one another against smaller companies and startups? What is the cost of producing and maintaining a virtual world, and how profitable is it?
- Manifold other interesting questions, like: How are virtual property rights determined? Should virtual property be taxed and if so, how? What are the consequences of games for socially important phenomena like marriage and divorce rates, crime rates, obesity, and fertility? What does the rise of the virtual world industry mean for other leisure and recreation industries?
My work in the pure economics of virtual worlds currently focuses on guilds in World of Warcraft; specifically, how they compete, and how members cooperate with one another to produce boss kills.
The final opportunity for research is something of a holy grail in game studies: the virtual world as a laboratory, and as a barometer of the real world. The fundamental obstacle to research on a policy's effect on large-scale phenomena – economic fluctuations, political movements, wars, etc. – is that it is impossible, or highly unethical, to randomly assign people to the policy treatment and control groups, and then compare outcomes. In virtual worlds, it is possible to perform random assignment on a player population, institute a policy, and observe the outcome, without ever causing harm to the real-world
player. Virtual world and player behavior may also provide information about phenomena in the real world. Do economic and demographic fluctuations in games reflect their counterparts in the real world? If so, there is the tantalizing possibility that we can continuously observe migration patterns, employment rates, economic growth, or inflation, rather than observe them in discrete periods of only once every 1 or 3 months. My work in this area has focused on the very high rates of inflation on World of Warcraft servers that are attributable to the real money trade (RMT), and the response of virtual prices to the account and gold elimination policies that Blizzard practiced in mid- to late-2006.
To pursue this agenda, I'm currently designing a program of study with an emphasis on game design, data mining, and policy analysis, all of which dovetail nicely with my economics training. In four or five years, when I'm finished at IU, I want to have asked and answered important questions from each of these topic areas. I look forward to a multi-faceted career as a teacher, a researcher, and an adviser to government, industry, and advocacy groups. And finally, I hope to have made significant progress in opening up a field that is only just becoming accessible to researchers and academics.