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Valve's economist-in-residence posts his first paper

Earlier this month, it was revealed that Valve had hired economics professor Yanis Varoufakis to be the game developer's "economist-in-residence". This week, Varoufakis has written his first paper on the Valve Economics blog. Not surprisingly, he writes about an aspect of Valve's in-game item store in its free-to-play shooter Team Fortress 2.

Varoufakis calls Team Fortress 2's item store a "peculiarly sophisticated barter economy". Of course, a barter economy involves trading items, such as Team Fortress 2's character hats and other items, for other in-game items. In history, a barter economy usually evolves into one where currency is exchanged for items. In Team Fortress 2's case, this has evolved into something else. Varoufakis states:

... a close study of our Team Fortress 2 economy revealed a more complex picture; one in which barter still prevails even though the volume of trading is skyrocketing and the sophistication of the participants’ economic behavior is progressing in leaps and bounds.

The barter system has now achieved equilibrium in Team Fortress 2. Sometimes, players of the game try to get items in a way that costs them less than it would normally. This is called "arbitrage" in economic terms. However, the game's system doesn't allow that to happen for a long time, and the game's economy reaches equilibrium again. Varoufakis gives an example of how this works:

Jill starts with 6 earmuffs and, just by bartering, she ends up with more earmuffs than she started off with. While this is great for Jill, economists believe that arbitrage opportunities of that sort cannot survive for long. Why? Because, if these opportunities for gain (without pain) are freely available, they will be exploited.

Valve has already announced that the upcoming action-RTS game Dota 2 will also have its own in-game item store. It will be interesting to see Valve and its new "economist-in-residence" will be able to take the lessons of Team Fortress 2 and apply them to Dota 2.

Source: Valve Economics blog

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