Free Market: A Case Study in Team Fortress 2 | Jacob Rickabaugh | TEDxPSUBeaver

hello everyone there we go I think we'd all agree that economics is a complicated field and it can be confusing it's no surprise that a lot of people consider it to be a boring subject but economics can be fun and to show you that we're gonna be taking a look at an economy that on its face is nonsense we're keys are used to buy things and hats are highly sought-after it's an economy I personally have a lot of experience with and there are a number of scholarly papers looking at it for its unique quirks I'm talking about the player 2 player economy of the multiplayer online video game team fortress 2 published by Valve Corporation in 2007 it was originally a game you had to pay to play but in 2010 it was made free-to-play and attracted millions of players even today there are about 50,000 people playing at any given time ever since the ability to trade in-game items with other players was added a highly sophisticated economy has emerged surrounding the game but why should we look at it I mean it's fun sure but what's important about it what can we learn from looking at this economy well it comes from simple beginnings it's a system based on barter just trading items directly with other people it's the most simple form of economics but from these simple beginnings players have made a number of innovations that have caused the economy to become as sophisticated as it is today and because of that development from simplicity to complexity it works well as a model of real-world economic development a lot of real world economy started with bartering and worked as a model railroad economic issues as well if you combine that with the fact that there's a huge amount of data on the transactions conducted around this game it becomes very appealing as a subject of study before we can get into any economics I need to give you just a short crash course on how the in-game item system works as players play they're rewarded periodically by receiving item drops that is random items that are added to their inventory usually you'll get weapons but sometimes you'll be lucky and get hats or something similar a cosmetic item that adjusts the appearance of your character and because those things are more rare they're more valuable that's a fundamental principle of economics scarcity equals value the more scarce something is the more valuable it is and by that for that same reason weapons are the least valuable items in the game now players get random items as they play but they're always also a crafting system in the game to make specific items that you want the main ingredient for crafting is metal if you some smelt down to weapons you can get one piece of scrap metal combined three of those you can get one piece of reclaimed metal combined three of those you can get one piece of refined metal that's the big one that we're going to be talking about and if you decide you want to break these down then you can you can break them down into their constituent parts if you want to make a simpler crafting recipe for instance now now that you know these basics we can get into the actual economics starting with problems with barter systems like the one tf2 has the first and most significant of these is that in any barter transaction there needs to be a double coincidence of once both parties need to want something the other person has or else the transaction can't go forward second there's no common measure of value in a barter system there's no way to say this thing is worth this much it's all subjective third goods are indivisible if we agree that one sheep is worth two goats I can't give you one I can't give you half a sheep for one goat you say cutting the sheep in half reduces its value and lastly goods are just bulky it's difficult to store them in tf2 that problem manifests in the players having limited inventory space in which to store items all of these problems are solved by a currency there's a lot that goes into an ideal currency and I won't get into all these points but if you think about these attributes in the context of dollars you can see why they're a good of currency and if you think about it in the context of for instance I don't know sand you can see why it would make a bad currency in history precious metals were used as currencies because they had these sort of characteristics and in tf2 and interesting sort of parallel is that metals are also used as currency because they're valuable to everyone they can be used for crafting they allow you to condense value by you know combining many weapons to make the metal there and they can be easily combined and divided into their component parts and to different denominations you see like think of dollars and cents so they become the de-facto currency for the community now that we have money there need to be things we want to buy this is gonna be a little bit more game talk just bear with me it is essential for understanding the coming points the main way rare Goods come into the economy is through crates like the one you see in the middle these contain items that can't be gotten anywhere else and players are given these crates as they play along with their other items the only way to open a crate is with a key like the one you see on the left these come into existence by being purchased for two dollars and fifty cents real money each in the in-game store if you buy a key and you use it on a crate the keys consumed and you get one of the items in the list or has a 1% chance from any crate the coveted unusual hat a hats with an animated effect that really stands out if you ever heard of conspicuous consumption buying things for the sole purpose of showing off your wealth not for any practical reason unusual zazz they're called perfectly exemplify that when you get to goods as rare as these they become quite valuable because they're quite scarce remember that point I made scarcity equals value so it becomes unfeasible to purchase these with metal it would be like trying to buy an expensive piece of jewelry with one dollar bills there just needs to be a higher denomination of currency than that and keys have come to be used as that form of currency they're valued by everyone and they're relatively scarce because it takes two dollars 50 cents to make one so they fit the bill perfectly normally to conduct a trade with anyone you would need to encounter them in the game and negotiate it but if you're looking for something specific that approach isn't really gonna work this is a problem that's been solved since the beginning of civilization with bazaars with marketplaces and players have taken it upon themselves to make these marketplaces online to facilitate the Train of items this is perhaps the most most used one backpack TF you can see here some of these prices that these are listed for if you consider that a key is worth two dollars fifty cents these items are being sold for hundreds of dollars this is serious business now we understand how the system basically works we can talk about a problem with the system that emerges keys are created all the time by being purchased and they're destroyed all the time by opening crates so there's scarcity doesn't really change their value doesn't really change add to that the fact that they're anchored to the dollar and it again Silla Phi's their value anchoring like this well by anchoring I mean every key is worth two dollars fifty cents they have a fixed price to them and anchoring like this is also a concept in real life foreign currency exchange a country might say our currency is worth this much of this country's currency as a way of strengthening it metal on the other hand is created all the time but it's very rarely destroyed theoretically it should be destroyed through the crafting recipes I mentioned earlier but in reality those are very inefficient here's just an example of some of them on the right you can see the ingredients involved in the recipe in the middle you can see the weapon that it makes and on the right you can see the cost of that weapon in terms of weapons despite every weapon being of equal value in the eyes of the market some of these can require more than a dozen weapons to craft so there's really not any incentive to do this and because metal just keeps increasing in quantity it results in inflation currency becoming less valuable as more of it exists this chart shows how much refined metal it took to purchase a key over time you can see for about 2011 to 2012 it was a little over two were fine metal for a key might be mid 2014 it had shot up to over eight refined metal for a key this is a humorous post someone made around the time that buying a key in two years in reference to the real-life phenomenon we're in times of serious inflation people would literally cart their money around in wheelbarrows to get it from place to place but little did this person know exactly how how right they really were because now in 2019 the price of a key is more than five times greater than it was in 2014 to put this in perspective inflation is healthy when it's around two to three percent that is when prices increase by about two to three percent every year it's healthy because it stimulates demand if you know your money isn't going to be worth as much in a year you're incentivized to spend it right now instead of holding on to it so it keeps money flowing through the economy but of course the inflation rate of metal has greatly outpaced this at times reaching as much as 100 percent over the course of a year how can we deal with inflation there are a few ways governments deal with it one way is increasing wages proportionately to inflation if money has less purchasing power you can just increase the amount of money in the economy that helps to counteract the effects in this context that would be like that would be done by valve giving players more items as they play but this approach requires a level inflation that's nearly healthy to begin with if you have high inflation already doing this can just exacerbate the problem another approach is contractionary monetary policy that's a pretty scary sounding term but all it means is reducing the amount of money in the economy if something's more scarce it's more valuable and you make money more scarce it's worth more this is done in real life through things like increasing interest rates and other ways that the government can reclaim money in tf2 it would be something like a metal sink something that incentivizes players to destroy a huge amount of refined metal for some sort of reward unfortunately though as a company and not a government yep valve doesn't really have any incentive to do those things it's to their advantage if players need to buy the $2 50 cent keys to participate in the highest circles of the economy and so the currency of the wealthy that is the people who have bought into the game with real money is has a stable value the currency of the people who play the game for free the poor is constantly decreasing in value and this leads to an increasing gap in wealth this is a negative trend that's been going on for some time but now I'd like to discuss a specific incident that's impacted the economy recently and what some have called the final nail in the coffin for the tf2 economy the Krait depression in July of this year a bug was introduced with crates I mentioned earlier that the chance of getting an unusual from a crate was 1% but for just a day until this bug was fixed the chance of getting on unusual was increased to 100% and as you can imagine this sent people into a frenzy they opened as many crates as they could they bought loads of keys they pea players were selling crates to each other for ridiculous prices and in the end unusual hats which were once so valuable were worthless overnight this is a textbook market crash some shock occurred to the economy people wanted to cash out people saw other people cashing out so they wanted to cash out as well before the prices got even lower and overall it left the economy much worse for wear how do you deal with crashes like this there's a short-term way and there's a long-term way the short-term way is instituting trading curbs this means stopping all trading for a certain period it lets everyone catch their breath decide what they want to do so they don't just sell frantically and plummet and make prices plummet and valve did this in the wake of the bug they made all the unusual hats obtained from the bug untradable until they could decide what to do another way a way of actually solving the problem or at least mitigating its effects I should say is yes injecting capital into the economy you might know these as a bailouts their purpose is to keep certain people and institutions afloat in times of crisis so because if those people or institutions went bankrupt then they would have negative consequences for many other people to a certain extent valve did this as well they issued refunds for any keys purchased during the time these are the ways government's can deal with it but unlike with inflation in this scenario in this situation valve was able to deal with this problem better than any government could because they had direct control over goods they wanted to strike a balance between player happiness and economic health so they decided to make only the first unusual everyone obtained from the bug tradable he'd let people enjoy the unusual hats they got and well the event did end up having some impact on the economy it was greatly reduced sometimes interventions like this from a governing body can be quite helpful and that gives us the state of the economy today growing wealth inequality a market recovering from a crisis and no chance of engaging with the highest circles of the economy unless you invest a significant amount of time or money but while it might not be so feasible to actually participate in this economy today it's still valuable very valuable as a subject of study and I hope looking at it has given you some insight into why our economy works the way it does thank you you [Applause]

Channel: TEDx Talks

Views: 267,356

Rating: 4.9699965 out of 5

Keywords: TEDxTalks, English, Business, Economics, Education, Games, Gaming

Id: w-I6Qn56QWI

Length: 15min 25sec (925 seconds)

Published: Tue Jan 28 2020

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[u/Alexm622]

this was actually in my reccomended today. only time ive actually learned something

[u/Vexxisalazyman]

I thought this was an edit this is real? holy shit nice job tf2 community