This project will use a frame of comparative economic systems to gather and analyze data from economies in the most recent virtual worlds and social media. If a coherent system seems to be emerging, it will be interpreted as new territory on the map of the psychology of commerce. These new systems - having been born in the space between real and virtual - might move quite easily into the real world and, there, have a powerful transformative effect. Thus, this project is an effort to move quickly, in the early stages of these rapid technological developments, to see whether the unique but untested economic practices in virtual/real boundary spaces might have a transformative effect on the real world.

To test for potential transformational power, this research will examine a wide variety of virtual economies, from games, social media systems, and 3D immersive platforms, and attempt to identify common features. The functioning of economies will be directly observed by researchers; there will be no research protocols that require human subjects. The common features most likely to be found would include the presence of dual currencies (one entirely virtual, another between real and virtual); commitments to equality of opportunity and fair process; indifference to outcome inequality; and free goods alongside extremely rare goods. As a very rough simplification, we might suppose at this point, prior to any research, that if the virtual economies focus on emotional satisfaction, and the real ones focus on efficiency, the real/virtual hybrid system seeks policies that promote emotional satisfaction in the most efficient way. Put another way, the new systems will have companies aggressively seeking profits using methods that preserve the customers' fantasy that they are not the target of profit-seeking. If refined, such a strategy could have a heavy impact on commerce in general.

Institutions and policies birthed in the space between real and virtual are highly unlikely to remain there. For one thing, much of the real world already operates according to patterns we now label "virtual." For another, history indicates that systems melding freedom and profits with security - born in the drive to create a Third Way - have been incredibly powerful forces in social evolution. Even the United States now has a near-universal health care policy. If technology companies discover how to meld freedom and profits with emotional satisfaction generally- not just a sense of security but also feelings of self-efficacy, significance, and belonging - the models they design may be adopted well beyond the internet. First signs of such a change are emerging, as companies consider how to "game-ify" their workplace policies and professional organizations seek to exploit social media and games for serious ends. A general recoding of human organization may be in the offing. Thus while it is still far too early to rest easy on such grand concepts as "new economic systems" constituting a "new way," the overall significance of the possibilities warrants an initial exploration and testing.

Project Report

Dear Taxpayer, If you don't mind, I'd like to skip all the academic mumbo-jumbo and try to talk to you honestly about what I've been doing with your money. I hate paying taxes too and it drives me crazy when I see them being wasted on bridges to nowhere. I try to hold myself to a standard: If my research is less valuable than a chunk of good road, I better not ask for government money to support it. So here's my attempt to convince you that what I did with your money was just as valuable as building a chunk of good road. If you disagree, well, I'd want to know that and I would not ask for any more funding. I'll be alright without it and hey, it's your money. You're the boss. OK, boss, here's my pitch. I work in the area of "virtual economies." You know and I know that the economy is a mess right now. It needs all the help it can get. At the same time, it's changing, fast. Even if we had answers for the old economy (we don't), they wouldn't work now because the old economy is gone. I work on the new economy, the economy that lives in computers and online. A "virtual economy" is just that: It's an economy that exists entirely online, in a place like Facebook, and never touches the real world. Ten years ago, virtual economies were little. Today, Facebook alone has 500m people in it. That's bigger than America. And every one of those people has access to a virtual currency called the "Facebook Credit." They're using that play money to buy and sell all kinds of virtual items. As if we don't have enough problems with the real dollar, here comes a virtual form of money that's all over the world and run by a single company. Not only that, but there's dozens and dozens of virtual currencies out there, being run by other companies. These currencies are starting to blend out into the real world. For example, Microsoft has its Microsoft Points that you can use in your Xbox 360 game console. The Xbox also has enough technology packed into it that you can use it to watch movies. Well, guess what? Microsoft cut a deal with Netflix and Hulu so that you can download movies and TV to your Xbox and watch it there. That's right - no cable company and no movie theater, just the Xbox. And instead of paying dollars to AT&T Uverse and AMC Theaters, you're paying Microsoft Points to Microsoft. I hope you can see that we're just a step away from paying Microsoft Points for all kinds of online stuff, and then if Amazon gets involved, suddenly we're using Microsoft Points to buy shoes. These points turn into money at some point and they become a parallel billion-dollar economy. And the government is going to have to get involved. There are a lot of issues around all this, but the point of my work is, when the Federal Reserve and the Commerce Department and the Treasury and the White House and Congressional committees and the judges all need to get involved in virtual economies, it would be helpful if they could find basic information on what virtual economies, where they come from, why people like them, and how they work. That's what I do. The NSF gave me about $100,000 over the past year to go out and explore all the economic changes happening on the bopundary between the real economy and the virtual economy. Pretty much everything I wrote just now came from that research. My university took half the money, as is normal, to pay for my office space and lightning and power. A bunch of the money went to pay for the subscriptions and industry reports and consoles and computers we needed to do the exploring. The rest went for hiring people, namely, me and some students - your kids - to do the research. We developed a protocol questionnaire for them and had them go into a virtual economy (like the Xbox system) and look for certain features from a long list. Then I worked with a research assistant to gather all that up and do some case studies. WHen we're done, it will all go into a published book (preliminary title: "Wildcat Currency: The Virtual Transformation of the Economy"). The kids learned research, the university got some needed gear, and the world got some info about an important subject. I really hope this meets your standard of achievement, and I'm deeply grateful for your support. Sincerely, Edward Castronova

Agency
National Science Foundation (NSF)
Institute
Division of Information and Intelligent Systems (IIS)
Type
Standard Grant (Standard)
Application #
1049449
Program Officer
William Bainbridge
Project Start
Project End
Budget Start
2010-09-01
Budget End
2011-08-31
Support Year
Fiscal Year
2010
Total Cost
$117,013
Indirect Cost
Name
Indiana University
Department
Type
DUNS #
City
Bloomington
State
IN
Country
United States
Zip Code
47401