Sunday, January 4, 2009
"Change the Game"
So said a billboard when I used to run laps on the rooftop of an NYU building in grad school. At the time I was struggling with a 3rd year paper topic. I was trying to do something "bold" like Nash (at least as depicted in the Ron Howard fib fest) but I ended up merely showing that you could get arbitrarily large voter turnout even with rational agents who only care about the outcome. (Granted, you need to give me a bunch of assumptions on the preferences of the voters. But it's not as bad as it first sounds, and in fact one of my professors started out telling me it couldn't be done, and then 15 minutes later said, "OK I buy that" and then said the result wasn't interesting. Grr.)
Anyhow let's stop with my bitter grad school reminiscences and get to longtime reader Zach Kurtz's email:
I told Zach one problem is that he doesn't have long-term projects, so it wasn't clear how to model a cluster of errors a la Austrian business cycle theory.
In general, I don't understand why more Austrians aren't doing simulations. I think you could fairly easily show the effects of Fed distortions, and also show why idle resources should be left alone and gradually reincorporated back into the economy.
Anyhow let's stop with my bitter grad school reminiscences and get to longtime reader Zach Kurtz's email:
I devised a new way to play monopoly (originally for fun) and it has since evolved into a way to test the affects of central bank actions on a market (on players who don't know they're being observed). Using electronic banking edition of Monopoly, I would play as the banker. Unlike most monopoly games however, players have the ability to take out loans and make deposits (interest rates being set by the banker). Landing on a property or utility opens up an auction for players to bid (so prices are determined by the market). The winner of the property then has the option (starting the next turn) to put the property up for public offering to sell shares in the 'holding company' of that property.
I want to test how the manipulation of interest rates by the central bank affects market behavior and risk making decisions, as predicted by Austrian economists.
While obviously this isn't a perfect model of real-life economics, how good do you think it is and how could I improve it (without making the game too complex)? What are some other variables that could be important to test?
I told Zach one problem is that he doesn't have long-term projects, so it wasn't clear how to model a cluster of errors a la Austrian business cycle theory.
In general, I don't understand why more Austrians aren't doing simulations. I think you could fairly easily show the effects of Fed distortions, and also show why idle resources should be left alone and gradually reincorporated back into the economy.
Comments:
To all readers: I'm very open to advice on improving the model. Any ideas?
Bob - would investing in houses/hotels on owned property not qualify as a long term project?
Bob - would investing in houses/hotels on owned property not qualify as a long term project?
Zach,
Hmm you're right. I guess what I should have said was, you don't have long-term projects that require new inputs every period. I.e. I don't know how you can get something analogous to laying people off, and abandoning projects mid-stream.
Hmm you're right. I guess what I should have said was, you don't have long-term projects that require new inputs every period. I.e. I don't know how you can get something analogous to laying people off, and abandoning projects mid-stream.
Oh also, a hotel is a durable good, but it's not a long-term project in the sense I meant--it doesn't require you to put up $50 for x periods in a row in order to construct a hotel.
Ok I see what you mean now... perhaps we can institute a "maintenance cost" on construction projects so reinvestment is required for upkeep. The penalty for not maintaining property is reduced profit from rent.
It's an interesting rule because players will have to choose between using their capital (or credit) to maintain current holdings or investing in new ones (using past performance as the basis for the future)
Here's my question though, since demand for property is random (players land on property and must pay rent to the owner, whoever it is) it seems like it would be difficult to make wise investment decisions, even moreso than a "real" market. Or, perhaps, this lack of information help make the game more realistic?
Thanks
It's an interesting rule because players will have to choose between using their capital (or credit) to maintain current holdings or investing in new ones (using past performance as the basis for the future)
Here's my question though, since demand for property is random (players land on property and must pay rent to the owner, whoever it is) it seems like it would be difficult to make wise investment decisions, even moreso than a "real" market. Or, perhaps, this lack of information help make the game more realistic?
Thanks
The Blackadder Says:
Virginia Postrel had a recent article in the Atlantic about experiments simulating security trading. In the experiments they found that there would be bubbles despite (so far as I can tell) any distortionary effects from the equivalent of a Central Bank, etc.
Virginia Postrel had a recent article in the Atlantic about experiments simulating security trading. In the experiments they found that there would be bubbles despite (so far as I can tell) any distortionary effects from the equivalent of a Central Bank, etc.
Thanks for the story, anon... that's exactly the kind of information I'm looking for. I'll definitely check out the related journal articles.
I've thought about how this could be modeled in a game as well. Only in my mind I envisioned it as some kind of Starcraft-like video game. There is much more room in that environment for the necessary complexity. Thoughts?
Eric - I know what you mean but I'm not a computer programmer. I know economists have studied MMORPG's like World of Warcraft but I haven't heard of any games that are really good economic simulators.
Adapting the monopoly game board has worked out pretty well so far, at least in part because the players are familiar and are unintimidated by the game play, etc. I'm currently thinking about how to improve the model to make it more relevant for study.
Adapting the monopoly game board has worked out pretty well so far, at least in part because the players are familiar and are unintimidated by the game play, etc. I'm currently thinking about how to improve the model to make it more relevant for study.
http://www.sciam.com/article.cfm?id=virtual-world-economists-on-real-economies
You might find this article interesting Zachary.
You might find this article interesting Zachary.
Zach,
The whole point of ABCT analysis is that economic damage is caused during the process of capital misallocation, not afterward, which most people have difficulty differentiating from irrationality. If you want to do something to Monopoly to alter it to be more “Austrian,” promote this fact.
The goal must be to for the players to make bad decisions based on incomplete information, and of course, to regret these decisions. This is difficult, due to the nature of the game. (The real problem is that Monopoly is a zero-sum game, making one player’s win another’s loss, which is the polar opposite of economization, which ABCT is all about.) However, it might be simulated, or at least “forced through” by complex rules.
For example, allow the player to “create capital” through a “pausing” on the board, not through money exclusively. i.e. For every 3 turns “in jail” (plus $500?), you get a new player avatar (thimble, trophy, etc.) That way, you can see that the players will have to decide for or against the immediate gratification of rolling the dice. The “banker” would have special rules for recalculating the turns “in jail”, or what have you, depending on the aggregate decisions of the players. The players wouldn’t know this going in, and the banker’s change would affect everyone “in jail”. So, if the banker decides on 2 turns “in jail”, then changes it to be 5, the players’ individual advantages would be seriously hampered, as they watch their competitors not “in jail” run up the board. Alternatively, the banker can give other players bonus turns, cash, etc. This entire situation may be moot though, since the players may use statistical analysis to base their decisions, and game theory shows that even this scenario has “optimal” results, so nobody may be surprised by the outcome.
The whole point of ABCT analysis is that economic damage is caused during the process of capital misallocation, not afterward, which most people have difficulty differentiating from irrationality. If you want to do something to Monopoly to alter it to be more “Austrian,” promote this fact.
The goal must be to for the players to make bad decisions based on incomplete information, and of course, to regret these decisions. This is difficult, due to the nature of the game. (The real problem is that Monopoly is a zero-sum game, making one player’s win another’s loss, which is the polar opposite of economization, which ABCT is all about.) However, it might be simulated, or at least “forced through” by complex rules.
For example, allow the player to “create capital” through a “pausing” on the board, not through money exclusively. i.e. For every 3 turns “in jail” (plus $500?), you get a new player avatar (thimble, trophy, etc.) That way, you can see that the players will have to decide for or against the immediate gratification of rolling the dice. The “banker” would have special rules for recalculating the turns “in jail”, or what have you, depending on the aggregate decisions of the players. The players wouldn’t know this going in, and the banker’s change would affect everyone “in jail”. So, if the banker decides on 2 turns “in jail”, then changes it to be 5, the players’ individual advantages would be seriously hampered, as they watch their competitors not “in jail” run up the board. Alternatively, the banker can give other players bonus turns, cash, etc. This entire situation may be moot though, since the players may use statistical analysis to base their decisions, and game theory shows that even this scenario has “optimal” results, so nobody may be surprised by the outcome.
As far as economics in video games, check out Eve Online. They have a huge player controlled market system. Players engage in all levels of production, from mining and research, refining raw material, to production of goods, to transportation of final goods and earlier stage goods. I don't know if there is a credit market or any type of credit besides player-player loans. It should be worth looking at. The developers even track a bunch of aggregates, check out this blog post on the Eve mineral markets.
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