Economic system

Background or why the heck am I doing this?
''* Advanced players give newbies high-powered items because the advanced players have more than they will ever need. --Zachary Booth Simpson
 * Advanced players throw away items which a newbie would love to have because it is not worth the advanced player’s trouble to find a newbie to give it to.
 * A newbie has nothing to offer a medium level player who in turn has nothing to offer an advanced player.
 * Players continually hoard items increasing the size of the database.
 * Players litter the world with old items which cannot be sold to free up space for new items.
 * Players lose interest in the game because there is nothing left to acquire.
 * Players resort to barter as the currency hyper-inflates or disappears.
 * Prices fluctuate wildly due to inefficient microeconomic institutions.
 * Players can find the items they want for sale and can’t find buyers for the goods they have been encouraged to produce.
 * Tragedy of the commons rules the public resources.''

I am sure you recognise some of those, because I do. According to the The In-game Economics of Ultima Online, this is "what happens when a game economy fails". The NWN economy is extremelly flawed. And the reason is that it is based on single-player game economy, where the player is the center of the universe. Which actually also results in the fact that players expect that everything they do (or at least they are told that they should) is going to be rewarded with xp/items/money.

To ease the feel that it's the NWN that sucks, look at this:

Every game, I swear, EVERY GAME that allows players to make money in a multiplayer environment somehow gets its economy completely blown out of proportion. --MU

So, to answer the why-question, I'm adding yet another quote.

You can’t screw it up any worst than it already is. --Gordon Walton

This is what Wikipedia Gordon Walton said when Wikipedia Samuel Lewis spoke about Economics theories and MMOGs

So, what is the problem? or the Money Grow In Trees syndrome
When a character logs in for the first time, he has very little coins. He can barely afford to buy adventuring equipment. Looking at how cheap a torch is, and how much it costs to take a drink at a tevern, or sleep for one night at an inn, and what the base price of a munane short sword is, one can imagin what the real idea of the value of the money is. But soon enough, after adventuring here and there, the players acquire insane amounts of the gold coins (and items). They have more items and money than they know what to do with them. Selling items becomes uninteresting, because you don't really need more money - thus a lot of players give their things to newbies, affecting the economy even more.

Have you ever wondered where all the gold coins come from?

''This means that someone has found a sufficient quantity of the metal required to make these coins, mined it, smelted it, and minted it into a universally recognizable unit of trade. Barring duplication bugs and crooked administrators, the amount of this real money circulating around in any MMORPG seems to indicate that there are mountains of precious metals right near the surface (making it minable/pannable with pre-water pump technology).'' --MU

The sheer amount of gold coins and items should in its own result in hyperinflation, also called MUDflation (which is actually what happens in some MMORPGs). This situation is as bad as the one that we are facing in NWN, where things cost insane amounts of money, and the new players can' afford anything (which is then fixed by giving them more money, and sending the economic system into more spinning).

This could be seen as part of an ulimited resources issue. If you wanted (and had enough money for it) you could buy 1,000,000 full plate armors, and this wouldn't affect the economy at all. The same goes for the instant-mining-ores that have been introduced in NWN2.

The Closed Economy and why it isn't a good solution
The Ultima Online tried this for a short time. What is a closed economy, then?

The world has a constant number of resources. Let's say that to create a sword one needs 2 iron and 1 wood parts. When a sword is created (by a player, by NPC store, or dropped as loot), these resource parts are "removed" from the resource database. Only when the sword is destroyed the resources are given back and can be used into developing something else.

While this seems to be a reasonable solution (it's the opposit of the Money Grow In Trees Syndrome), it really isn't. And here's why:

1) We don't really know what is a reasonable amont of resources for a world. 2) We don't really know what is a reasonable amount of resources for the amount of players we're going to have (and we don't really know how many players we're going to have. 3) Hoarding (which all players do more or less) stops the resource cycle, binding precious parts in someone's backpack. 4) Eventually this leads into lack of resources and cash, no trade, and eventually a depression.

So, this totally opposit situation, creates opposit problems, which ara just as bad.

So, how about a simulated market economy?
This should be a good solution, right?

Wrong

How about this situation?

A player gets a quest, which he does, and as a reward he gets a magical ring. Let's say that he already had an item that already gave him this ability, and that the ability is not stackable, or that he simple didn't need it, and just wants the money. So the player goes to a shop. But the shop-keeper already has a pile of similar rings (from others who finished that quest), and refuses to buy the ring.

By the player's point of view this is an unacceptable situation.

In this example you can already see the reason why simulation of market economy doesn't actually work - with the quest we have introduced a situation where everyone who finishes the quest (which sometimes is actually just everyone), have an item, rendering the said item worthless as a reward.

The same goes for creating algorithms for price fluctuations, to keep the amount of money, and inflation down. The problem with algorithms (and simulation) is the fact that they are just algorithms. They are more or less complex, more or less flawed, and don't change when the player tastes change.

The truth is, that "more or less complex, more or less flawed" is actually mildly put:

''This method would require an incredibly sophisticated program moderating the various prices for all items in the economy, as well as the size of the money supply. Alternatively the game could have its own version of the Federal Reserve board, meeting once a month to set the “prime decay rate”. Both methods have a high probability of failure.'' --Sam Lewis

So, what do we do?
This is what we need, as described by Sam Lewis:


 * Monetary Policy – managing the money supply, to avoid hyper-inflation
 * Market Structure – creating a trading structure that lead to an interesting and engaging business game.
 * Industrial Organization – creating crafting/business relationships, creation of goods (and services).

But first, cover some basics
¨ Economics – The study of how supply and demand allocates scarce goods and services in a society. Economics is typically broken into two fields of study

o Microeconomics – behavior and decision making of individual firms and consumers.

o Macroeconomics – behavior of the economy in the aggregate, focusing on nation production, inflation, unemployment and the role of government.

¨ Government – the governing authority. In MMO terms the government is the game developers. The NPCs within the game are their agents.

¨ Manufacturer – characters that make consumable and durable goods. In most games these are known as crafters.

¨ MMO Business Game – a game where the players are both consumer and producer of goods and services. Some markets might be served by NPC agents, but for this discussion an MMO business game is primarily a Play vs. Player game.

¨ Pareto Optimality – This is the standard that most economics use to measure the effectiveness of any economy. When an economy is Pareto Optimal then no redistribution of goods or services can make someone better off without making someone else worst off.

¨ Goal of Real World Economy – Achieve Pareto Optimality.

¨ Goal of MMO Economy – Support a “Fun” business game of trading and crafting. The game involves the selling and buying of goods and services between players.

¨ Relative Wealth – Players want to be on the top of the heap, therefore in a business game they want more cash/stuff than anyone else. This was expanded to include a comparison of assets, and liabilities, in effect a balance sheet.

¨ Conspicuous Consumption – Allow the players to purchase and display luxury goods (houses, clothing, pets, NPC followers). Many of these goods should not have an impact on actual game success. They just show others that the character has “money to burn”. Note that this solution not limited to displaying success in a business game. It is a typical means of displaying success in MMORPGs (I got this rubber chicken hat from this difficult quest, I am a level 65 Paladin, I can afford to dye my armor purple etc.).

¨ Balance Sheets/Net Worth statements – allow players to see the financial health of the character though some form of an income/balance sheet statement. This should be set up so that the player’s economic standing can “sliced and diced” like a traditional leader board (I am the 2nd wealthiest flizz producer on the shard). Again this is similar to how MMORPG leader boards work.