The current credit crisis has caught monetary policy experts
by surprise, from the governor of the Bank of England to executives in
financial institutions around the world.
But would they have been better prepared if the contributing
factors had already been rehearsed in a virtual world economy?
It’s a possibility that would intrigue Michael Boskin,
former chairman of the Council of Economic Advisers under the first President
Bush.
Now a professor of economics at Stanford University’s Hoover
Institution, he was this week appointed chair of the newly created Council of
Economic Advisers in the virtual world Gaia Online.
He is the latest in a long line of economists studying
virtual worlds, dating back to Edward Castronova’s influential paper on
Everquest in 2001.
Mr Boskin told me one thing he would be looking at would be
whether there was a need for a central bank in Gaia Online.
“Historically, various institutions have grown up to
facilitate banking – we did not have the Federal Reserve till 1913, so central
banks can be a fairly recent phenomenon. Seven virtual banks have opened up in
Gaia, their interest rates can be different so we may be able to provide more
transparency and give users advice on that.”
Gaia does not allow its gold to be converted into real-world
currency, unlike Second Life, where its creator Linden Lab, makes money on such
currency exchanges.
Second Life avoided a currency crisis earlier this summer
when exchanges halved from around 2m US dollars a day following a crackdown on
gambling. John Zdanowski, the company’s chief financial officer, said a run on
the Linden dollar was avoided through the strategy of managing the money supply
so the exchange rate stayed fixed against the dollar – similar to China’s
policy.
Economists from the University of Chicago have also been
carrying out experiments in Second Life this summer, including a study of
whether residents would give up some of their assets to a public fund in
exchange for an undisclosed reward.
Eve Online, which enables intergalactic wars and alliances
for its members, appointed Eyjolfur Gudmondsson, a resource economist, last
month to monitor the transactions of its 200,000 players.
His main focus is currently on how to tackle inflation – one
method is to open up new planets for mineral exploitation, reducing commodity
prices.
Meanwhile, Edward Castronova has created his own
Shakespearian virtual world called Arden, backed by the University of Indiana,
where he and his students will carry out experiments testing basic economic
principles.
As Shakespeare said: “O brave new world that has such
people in it.”
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