The In-game Economics of Ultima Online

Who am I?

• Previously Director of Technology at Origin, Titanic Entertainment
• I was not a UO team member
• I am not an economist
• Consultant for Origin in 1998-1999, studied UO economics

Acknowledgments

• Members of the UO team, especially:
  • Raph Koster
  • Rich Vogel
  • Starr Long
  • Damion Schubert
• Economic consultants:
  • Andrew Stivers (U. Texas)
  • Timothy O’Neill Dang (U. Arizona) -- cregtog8@barriodevo.org
  • Prof. James Galbraith (U. Texas)

What is this talk?

• Brief description of the economy
• An analysis of how the economy evolved
• Harp on things that went wrong
• Not enough time to get into solutions, sorry!
• An occasional interlude for Economics 101

What this talk is NOT

• Not a "how-much-is-it-going-to-cost-me-to-build-my-UO-clone talk"
• Not a debate over how fun UO is
• Although that is ultimately more important
• Not about UO characters sold on eBay
• No matter how much Mary Margaret begs! :)

What is "economics"?

• Not the study of money; not finance.
• A set of tools developed to analyze how people behave when allowed to trade. Because, after all, people behave however that damn well please no matter what the math says.
• "Tools are not bricks" [CHURCH 99]

Right tool?

• Be careful: people don’t necessarily behave the same in a game, some tools may not apply.
• I highly encourage you read up!
  
  • But be careful, politicized topic = bias & bad science
  • I like the economists who still treat the subject as psychology and not as calculus.
  • J.K.Galbraith and P.Krugman are both very readable.

What is an economy?

• Any system that involves people exchanging goods and services
• Does not imply currency or prices
• Ideal economy is meeting everyone’s needs
  • Even the one’s they didn’t know they had.
• Ergo: hard to say if an economic state is "good".
• Maybe it’s easier to say if it is bad...

Bad Economy Symptoms Part I

• Minimal person-to-person interaction & dependence, especially between advanced player and newbies.
  • Advanced player give newbies high-powered items because they have more than they need.
  • Advanced players discard items that a newbie would love because it isn’t worth their time to find someone to give it to.

Bad Economy Symptoms Part II

• Supply is unpredictable
  • Players hoard items, reducing availability
  • They litter the world with unwanted junk
  • They lose interest in the game because there’s nothing left to acquire.
  • Prices fluctuate wildly or become inflationary
• Demand is unpredictable
  • Players can’t find buyers for the items they’ve been encouraged to produce
  • Player manufacturers create unwanted junk

Bad Economy Symptoms Part III

• "Tragedy of the commons" rules the public spaces
  • The principle that something that is a lot good for me and a little bit bad for everyone else will inevitably be exploited until it is all bad for everyone.
  • Classic example: grazing sheep in the town commons

Semantic Nit-picking

• A "virtual economy" is the simulation of an economy.
• UO is not a virtual economy; it is a real economy involving the exchange of virtual goods and services.

What virtual goods? A sample

Where do baby items come from?

• Loot on creatures
• Raw materials from mines
  • Extracted from automatically generated resources such as ore, wood, or wool from sheep
• Player manufacturing
  • Applying skills with tools and raw materials generates finished goods such as weapons and armor
• Non-player manufacturing
  • Shopkeepers produce many items that do not have player-production paths; e.g. reagents

Weaving Skill Rebus

Practice Makes Perfect

• Player skills improve through use
• Unused skills degrade
• Hard to become a jack-of-all-trades

Incentives To Produce

• Market demand
  "Hey Mr. Tailor, can you make me a shirt?"
• Making now improves quality and price later
  "Can’t talk, making shirts!"
• The sheer fun of it
  "I built a fort out of fur boots!"
• Cheating with macros
  "When I wake up tomorrow, my character will be a rocket-scientist!"

The Result: Oversupply

• UO’s "practice makes perfect" rules create incentives to over-produce certain goods.
• The market in basic items is saturated and thus prices are extraordinarily low.
• Producers get upset at the low price but keep manufacturing anyway.
  • Like Texas Oil Producers and DRAM chip fabs
  • Tragedy of the commons

Oversupply: so what?

• Unlike the real-world, more stuff is very bad:
  • Servers slow down
  • Backups get bigger and therefore less frequent
  • Black-holes

Econ 101: Shifted Supply Curves

• Non-market incentives push the supply curve right.
• Demand curve hasn’t changed so the price drops.

The Shopkeeper Failure

• Shopkeepers intended to supply the un-manufacturable as well as solve transience
• AI was a complicated analysis of market forces
• Important: NPCs are part of a "virtual economy" that is attached to the "real" economy.
• It’s really weird

To subsidize or not?

• NPC shopkeepers subsidize production to encourage character development
  • Like Dad at a lemonade stand
• Shopkeeper cash-flow AI reasonably refused to buy junk already in over-supply
• Players report this as a bug -- expect a free ride
  • Used to single player games
  • Not everyone wants to be an entrepreneur

But, before we punt NPCs...

• The shopkeepers have no cash, therefore give them something to sell that players want
  • Extra advantage of removing gold from hyper-inflated economy due to counterfeiting
• Difficult to invent lots of new things
  • "New improved BLUE armor, a lot like silver armor, but its blue!"
• Players upset by unfair competition
  • "Hey, how come the NPCs get to sell blue armor but I don’t? This sucks!"

OK, punt.

• Designers gave-in, eliminated shopkeeper profit-motive AI
• Shopkeepers now subsidize up to X units of junk per hour.
• Inflating the gold supply, but at least newbie characters are developing.

Black Markets

• Reagents most valuable commodity distributed exclusively by NPC shopkeepers
• Speculators with bots and "Mafia" cornered the market in reagents and inflated the price
• Amused a minority, outraged the majority
• Eventually fixed itself as everyone got into it
• No barrier to entry

Econ 101. Soviet Retail

• Soviet Union had non-market incentives to produce
  • Soviet stores filled with useless items that no one wanted
• Shortages and huge lines formed for the what people did want because trading was inefficient / illegal
  • Subsidies and rationing common
• Black markets

UO Resource Flow

• All items are made of resources
  metal,fur, meat, gold, magic, etc.
• Resources flow from item to item and are conserved

Original UO Resource Flow

• Each "world" initialized with X meat, Y fur, Z gold, etc. in a "bank"
• Resources flow into world items from bank
• Items decay, break, sold, etc. flowing out of world back into bank
• Resources are conserved and thus no inflation!

Original Flow

Hoarding Is Rampant

• People hoard items like pack-rats
  • "Someday I’ll need this"
  • Decoration
  • Laziness
  • Speculation
  • Mementos
  • Status symbols
  • Achievement
• Tragedy of commons making server run slow
  • Players don’t even realize it

What’s wrong with this picture?

• Drains all suck
  • Botched manufacturing is insignificant
  • Players hate decay especially when not online
  • Players hate excessive degradation
  • Selling to NPCs is great, but it involves printing gold!
• All resources eventually end up in inventory and thus...

No dragons to kill!

• In closed economy: no outputs = no inputs. I.e. no dragons to kill!
• Again: changing the rules midstream (taking things away) is politically unacceptable.
• Give us orcs to kill or we’re going to riot!

Econ 101. Liquidity

• Two equally important factors in price determination: Quantity and Liquidity
• Liquidity is the measure of how willing people are to trade in something.
• Even if there’s a lot of something, it doesn’t mean it will be cheap.
  • If no one will give up their Pokemon cards, they will still be expensive even if there’s millions of them.

Econ 101. Liquidity of Currency

• Liquidity of currency matters too
  • Currency is just another kind of commodity
• Inflation
  • If it is created in excess, it becomes worthless and inflation sets in, i.e. prices rise.
• Deflation
  • When people hoard currency as savings, they make it more scarce and prices or production will fall
  • (Baby-sitter co-op analogy)

Let it rain!

• The concept of closed economy was unsustainable without new drains
• Lots of drains proposed, none were politically acceptable/effective in the short term
  • Taxes, Real-estate Maintenance Fees, Natural Disasters, Lotteries, Consumables, Indulgences, Recycle bins, Capital depreciation
• To hell with it: disconnect the drain and pour in the resources
  • abandon the closed-economy; reduce player bitching

New Flow

So Now It’s Inflationary

• The servers are filling up
• The backups are getting bigger
• Prices are rising
• But at least there’s dragons to kill!

Counterfeiting

• Hacker’s Law:
  • Developers are out-manned by hackers; hackers have more time and great communication
  • Therefore, exploits will always be found faster than fixes can be made.
• An obscure server fault allowed cloning of gold and reagents.
• Fixed after a few days
• "Wrecked the experiment"

Effects of Counterfeiting

• People didn’t stop playing
  • Maybe the economy isn’t so important after all
• Anything players wanted from NPCs, they could have.
  • They didn’t really want anything, except reagents which were also counterfeited.

Effects of Counterfeiting (cont.)

• The worlds where there was early counterfeiting have a higher "standard of living"
  • Players don’t seem to care, they want challenges and relative wealth
• Not like the real world at all!
  • People don’t move to Mexico because the US is too rich!

Lessons Learned Part I

• Hoarding is rampant.
  • Failure of closed economy.
• The economy must maintain liquidity; tying input flow rate to the output flow was a bad idea because hoarding froze the input making the game uninteresting.
  • Failure of closed economy.

Lessons Learned Part II

• Over emphasis on the macro-economy and under emphasis on the micro-economy made setting prices on NPC goods difficult and inefficient
  • Failure of NPC Shopkeeper economy
• Institutions and opportunities for player-to-player trade need to be thought out and provided but not overly designed
  • Failure of the NPC Shopkeeper economy

Lessons Learned Part III

• Some design elements had unintended economic consequences. Economic motivations and incentives need to be considered on all design elements
  • E.g. vendors used as storage containers
• Incentives to overproduce resulted in oversupply and devalued prices
  • Side-effect of improve-by-doing system

Lessons Learned Part IV

• Players expect to make a profit for their labor if it is encouraged through game mechanics.
  • Side effect of the improve-by-doing system
• The economy is not the game
  • Counterfeiting