Bryan Caplan  

My Earliest Encounter with Economic Absurdity

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Looking back on my childhood, I heard a lot of economically absurd statements. But I didn't recognize them as absurd at the time. Teachers and parents said stuff, and I believed them.

The first time I encountered economic absurdity and knew on the spot that something was awry: I was eleven years old and reading the Dungeon Masters Guide (first edition - yes, I'm old!). Background: In the game Dungeons and Dragons, magic-users keep their spells in books, and learn more spells by copying them from the books of other magic-users. You'd think that, in equilibrium, spells of equal power would trade roughly at par. Or maybe some would be scarce and sell for more, while others would be common and sell for less. Or maybe they'd be available for free on the magical equivalent of Kazaa.

But according to the book, player characters can only buy spells at par from each other. The rest of the world drives a far harder bargain:

Superior players will certainly cooperate; thus, spells will in all probability be exchanged between PC [player character] magic-users to some extent... This is NOT the case when PCs deal with NPC [non-player character] henchmen or hirelings. Non-player character hirelings or henchmen will ABSOLUTELY REFUSE to co-operate freely with player characters, even their own masters or mistresses... As a general rule, they will require value plus a bonus when dealing with their liege. If they will deal with other PCs (or NPCs) at all, they will require double value plus a considerable bonus.

This example - where a PC named Halfdan wants to buy a spell from an NPC named Thigru, still cracks me up:

If Halfdan has been at least civil to the magician, Thigru will ask nothing more than a third level spell in return, plus another spell, plus some minor magic item such as a set of three potions, a scroll of 3 spells, or perhaps a ring of invisibility... [S]upposing [Halfdan] had actually saved Thigru's life at one time, the cost would be reduced to but a spell exchange and a single potion or scroll of one spell.

In short: You can save someone's life, and they still refuse to trade at par. Even when I was eleven years old, that seemed more fantastic than a ring of invisibility.


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COMMENTS (13 to date)

I hear that today's MMORPGs are more economics-friendly. There was that one paper in-the-works about the economics of "World of Warcraft". Things got seriously also because players are into it enough to use real world money to buy WoW money or items.

I sometimes think about purchasing power parity between the real world and the WoW and then I wonder how is it possible that I'm such a big nerd?!

Anonymous writes:

Perhaps you can explain to me why World of Warcraft currency is trading for anything greater than zero? It's just bits in a computer that could just as easily be set by a game-master. Who could possibly be into a video game enough to, in essence, pay others to help them?

Anonymous, time is money :-) Why spend hours and hours in the game collecting items and going through repetitive tasks to get money when you can buy the best gear you can afford and stick to the fun parts of the game? Not to mention that some items are unique or very rare.

It's revealed preference. They're rather have the game items than have the dollars. And preferences are a weird-weird-weird phenomenon, if you stop to think about it. :-)

P.S. Game masters are careful with the creation of currency, for the same reasons that central bankers seem to be. Scarcity is the spice of life, no? :-)

Stagflation in WoW? No more quests and too much liquidity? ;-) Genius!

Fabian Mangahas writes:

I played RPGs myself, and I never found it weird that NPCs had such un-economic behavior. :) This is because I knew that all NPCs, no matter how the DM tries to make you believe otherwise, was all just one person. The DM.

Not too easy negotiating with "God", and tapping in to his preferences. Actually, the preference of the DM seemed to be to enjoy frustrating you. ;)

Well, I figured that one was for game balance, and never worried much about it. NPC's are extremely stingy with spells, so what? There's no rule saying they have to act rationally in a role-playing game...
I thought most about the inflation issues. Especially in the early versions of D&D, where gold pieces gave experience points, I wondered: when stuff like food is so extremely cheap that one trip to the dungeon will ensure you can get enough food for the rest of your life, shouldn't there be some inflation and other effects? Most people are sustenance farmers after all, in D&D as in real life.
Also, in high-magic campaigns or campaigns with lots and lots of adventurer-types (this includes all MMORPGS) I pretty early ran into inflation-related inconsistency problems that prevented the suspension of disbelief that was so critical to enjoying an RPG session.

So these days, my RPG activities are limited to the occasional game of Nethack. That at least excercises your imagination a little. ("Oh no! a swarm of little yellow a's!")

Timothy writes:

I'm sure you've noticed that 3.0 and 3.5 D&D are much more reasonable in terms of spell pricing. Scrolls of a certain level cost the same amount, those that require XP or expensive material components tend to cost more. If you're using the standard DMG rules, that is. I forget what the formula is off the top of my head, but it seems pretty reasonable and at least looks like more normal market behavior.

Of course, you can always price things in your game world as you see fit.

Neel Krishnaswami writes:

The real economics isn't going on the fiction -- Halfdan and Thigru don't exist, after all.

Instead, the tradeoffs that are being weighed are the ones between the players, and not the characters. The players are competing over a scarce resource, namely being the center of attention. A player with a lot of game-related resources is one who will be better placed to hold the attention of the other players.

Now, Halfdan's player gains the ability to be central to the action of a wider selection of scenes if he has a wider selection of spells. So, the trade the GM is offering is really: give up some concrete resources -- potions and scrolls -- in exchange for greater potential versatility -- a longer spell list. This is an interesting decision. If Thigru "traded at par", then Halfdan's player can just have his character bulk out his spell book trading spells, and then repeat with all the other wizards. Since there are no tradeoffs between the game resources he can wield, he has no interesting decisions to make, and so the game will be less entertaining to the actual people at the table.

Halfdan getting a better deal if he's saved Thigru's life has nothing to do with realism, either. This is part of his reward for the scenario involving Thigru's rescue, exactly like the gold pieces in a dragon's hoard.

(Incidentally, observe that you can completely ignore the spells that Halfdan "gives" to Thigru as a cost, because the DM can give any NPC any spell he or she likes.)

Xellos writes:

To bring a slightly different viewpoint in on things (although I mostly agree with Fabian), this has a lot to do with the way magic is generally set up in the games.

AD&D wizards seem to gravitate to guild-like structures. In the guild hierarchy, status is largely based on spells; both the difficulty of spells the wizard can cast and, important to this discussion, the range of spells the wizard can cast. In such situations, trading a spell with a rival (ie. all magic users, whether or not they're official members) can grant them that little extra edge they may need to advance. Despite gaining a spell yourself, this could easily come out to be a total negative for you.

I think looking at it in this kind of light makes things fit sense much better. Or maybe I'm just good at retcons. But it was an interesting thought anyway.

Steven AL writes:

In short: You can save someone's life, and they still refuse to trade at par.

Grudge. How do you price a grudge? How about a clan /class / race grudge.You saved my life but you're still a Hatfield BANG!
How about if rather than a McCoy you're Bill Shaudenfrauder and you have a grudge against Xers and they need to buy your help? Would you trade at par? I can understand your youthful innocence but you're all grown up now. Whatever fantasy world you frequented there must have been bloody mindedness. Anybody have anything on grudge pricing?

Modern day MMORPGs are a lesson in hyperinflation. Very profitable third-parth businesses have been created involving the sale of in-game gold and items.

Zac writes:

No better example of hyperinflation in MMOs than Diablo 2 around the time of the last patch and following.. "Gold" was so common it was actually useless when it came to rare drops.. but a relatively rare item with some usefulness that took up only 1 inventory slot, the Stone of Jordan, became a common form of currency. But as the days went by, the total supply of SoJs went up, so their value decreased, eventually to the point where they too were useless - since your inventory never expanded..

So where only mere months before it could take days of grinding to find one SoJ, now they were everywhere. I'm not sure if a replacement currency was ever found, or it the game world converted entirely to simple bartering of items.

Okay.. not exactly on topic.. but close.

SirX writes:

Yes. I definitely agree with the economic absurdity of DnD but it didn't really bother me much at first because DnD is an absurd game that I enter with great willingness.
I've been a player for quite a long time of different games under different DM's with one standard DM for quite a long time and now I DM my own group myswlf and I think this is really up to the DM's call.
I had the misfortune to be under quite an absurd DM and, now that I'm DM'ing myself, it's much more fun to keep the rules as realistic as possible while keeping to the spirit of fantasy/absurdity in the game. That usually takes care of most munchkins, including myself.

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