September 21, 2007
Avoiding a virtual-world credit crunch
The current credit crisis has caught monetary policy experts by surprise, from the governor of the Bank of England to executives in financial institutions around the world.
But would they have been better prepared if the contributing factors had already been rehearsed in a virtual world economy?
It’s a possibility that would intrigue Michael Boskin, former chairman of the Council of Economic Advisers under the first President Bush.
Now a professor of economics at Stanford University’s Hoover Institution, he was this week appointed chair of the newly created Council of Economic Advisers in the virtual world Gaia Online.
He is the latest in a long line of economists studying virtual worlds, dating back to Edward Castronova’s influential paper on Everquest in 2001.
Mr Boskin told me one thing he would be looking at would be whether there was a need for a central bank in Gaia Online.
“Historically, various institutions have grown up to facilitate banking – we did not have the Federal Reserve till 1913, so central banks can be a fairly recent phenomenon. Seven virtual banks have opened up in Gaia, their interest rates can be different so we may be able to provide more transparency and give users advice on that.”
Gaia does not allow its gold to be converted into real-world currency, unlike Second Life, where its creator Linden Lab, makes money on such currency exchanges.
Second Life avoided a currency crisis earlier this summer when exchanges halved from around 2m US dollars a day following a crackdown on gambling. John Zdanowski, the company’s chief financial officer, said a run on the Linden dollar was avoided through the strategy of managing the money supply so the exchange rate stayed fixed against the dollar – similar to China’s policy.
Economists from the University of Chicago have also been carrying out experiments in Second Life this summer, including a study of whether residents would give up some of their assets to a public fund in exchange for an undisclosed reward.
Eve Online, which enables intergalactic wars and alliances for its members, appointed Eyjolfur Gudmondsson, a resource economist, last month to monitor the transactions of its 200,000 players.
His main focus is currently on how to tackle inflation – one method is to open up new planets for mineral exploitation, reducing commodity prices.
Meanwhile, Edward Castronova has created his own Shakespearian virtual world called Arden, backed by the University of Indiana, where he and his students will carry out experiments testing basic economic principles.
As Shakespeare said: “O brave new world that has such people in it.”
The global economy have evolved so much in the past decade but what we don’t realize is that when America goes into a recession the whole world cries with her as well. One thing for sure lessons were not learnt from the Asian crises of years ago, monetary experts need to come up with policies that act as safety nets when such crises emerge during the Asian crisis Malaysia survived because they made bold decisions which everyone at the time thought where not conventional and a step back ward but sometimes we all need to come up with our own unorthodox methods of solving economic problems. Text book solutions are have never been the way forward.
Posted by: Warren Marabwa | September 21st, 2007 at 1:07 pm | Report this commentThis was an interesting blog. It never occurred to me that online games could be seen as a source of study by economists. That said, it would be interesting to see the assumptions on which they based their findings.
Posted by: Patrick Rumeci | September 21st, 2007 at 5:21 pm | Report this commentGood digital-economic ideas that need massive speed and data channels,but why is so many chinese poor workers buying and selling stocks from home while in the USA and specially EU, the Governments really ,really DON’T push the idea, the TV networks,media, schools and Community centers never mention the idea and our top “leaders”( guess who?) can’t even open a browser and send an e-mail without their neocon personal advisers guiding them ? what do we have for leaders?
take the english top minister saying this week (ft.com) that Europe really does not need its own satellites-Galileo-GPS, so this one works for the competition ! and so goes the continent while the oil sheiks buy every key asset…..can we send the minister to the sheiks and put someone with a brain in his place,today ?
Posted by: blogger | September 21st, 2007 at 10:24 pm | Report this commentIt never occurred to me that online games could be seen as a source of study by economists.
Posted by: Blog Site | September 24th, 2007 at 3:42 am | Report this comment