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Valve hires economist to manage, experiment with its free-to-play games
Valve hires economist to manage, experiment with its free-to-play games
June 15, 2012 | By Eric Caoili

Valve has hired Greek-Australian economist and economics theory professor Yanis Varoufakis to help the company analyze the virtual economies/currencies of its games.

The company isn't the first game developer to have an in-house economist -- CCP brought in one to study its EVE Online MMO several years ago -- but this move supports Valve's shift toward producing free-to-play titles, such as Team Fortress 2 and the upcoming Dota 2.

Though Varoufakis has little experience working in the game industry or playing video games at all, Valve head Gabe Newell was familiar with the professor's work concerning Greece's economy and the Eurozone crisis -- Varoufakis had previously served as an economic adviser to former Greek Prime Minister George Papandreou.

Newell approached Varoufakis as the company struggled with issues concerning linking economies in two game environments to create a shared currency. He realized that the problem sounded similar to the current real-world economics troubles between Germany and Greece, and invited Varoufakis to become Valve's economist in residence.

Varoufakis says that working with in-game economies are an economist's "dream-come-true," as he actually has access to data from every transaction, and doesn't need to rely on statistics. At Valve, he intends to perform plenty of data mining, experimentation, and calibration of the company's services to players based on his findings.

He also aims to "forge narratives and empirical knowledge that (a) transcend the border separating the 'real' from the digital economies, and (b) bring together lessons from the political economy of our gamers' economies and from studying Valve's very special (and fascinating) internal management structure."

Varoufakis will publish weekly reports on his projects, experiences, and ideas regarding the company's game economies on his blog at Valve's site.

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Michael G
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Trying desperately not to see an omen in hiring a Greek economist, it was Goldman Sachs that leveraged their debt to breaking point after all, just like Iceland.

Eric Kinkead
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@Michael - Hilarious!

"Though Varoufakis has little experience working in the game industry or playing video games at all"

You're hired!!!

"data mining, experimentation, and calibration of the company's services"

sounds like a blast to play that!!!

Ian Wright
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Varoufakis is an execellent economist, quite unlike, often better-known, academic economists who championed financialization, which has led USA/UK/Europe into our current depression. For those interested, his recent writings on the breakdown of the Eurozone, and Greece's problems, are a must read. Gabe Newell demonstrates refined intellectual tastes here.

Eric Kinkead
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So you would say this guy data mines you REEAAAL good. nice.

Bart Stewart
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I generally like the idea of getting to root around in real game economy data looking for interesting patterns. What economist wouldn't love a chance like that?

On the other hand, according to published reports (e.g., Varoufakis doesn't like the idea of saving the Eurozone by economically prudential nations like Germany conditioning loans to recipient nations on their adopting what Varoufakis calls "austerity programs." He attributes the economic woes of the PIIGS nations like Greece to a "systemic European crisis," rather than to individual nations taxing and spending to preserve relatively large public entitlements. So he favors assigning the "good debt" of these nations (however that gets defined) to a new centralized "Bank of Europe," and someone picking up the tab for a TARP-like bank bailout.

I'm not sure how that belief system will inform Valve's "calibration of services provided to customers," or if it will do so at all. But I'm now sort of morbidly curious to watch and see.

All that said, Valve's been pretty good (better than most other developers, at least) about making some of its interesting internal data public. So I'm looking forward to that -- here's hoping some useful lessons for designing game economies are revealed.

Kostas Yiatilis
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Well the balance between the economies of the PIIGS and the rest of Europe is what allowed their debt to accumulate.

You see it's not like the states, although we all share the euro we don't have the same interest on our bonds, but the market has been working under this "assumption" from the beginning, allowing Greece to overdraw basically.

Now a currency is supposed to be a means of transaction, making people reach their limits (poverty, suicide, unemployment of epic proportions) should not be a normal situation in peace time.

The solution of basically printing more money, thus devaluing the currency, has been used countless times (that's what the bailouts were in the states), it's prudent to let people commit suicide so your precious currency doesn't lose value. Not to mention that it will essentially be closer to it's real value, not a value that is based on the German economy, but the sum of the economies that make the EU.

You also have to understand that a lot of people had nothing to do with all this overspending, nor was the public informed.

So the decision you have is: make people eat out of trashcans, let people lose their homes, jobs etc or print more money. Remember it's not that people bought homes they couldn't pay for, it's that the goverment overspent and is now slashing wages and increasing taxation to the point that people can't sustain a business or find work since everything is closing down.

Even considering the large public sector, their wages don't even compare to the money that has been embezlled by Greek Politicians (for example a public servant making 14K a year, needs 74 years to reach 1 million euro, but only one politician has been found to have at least one account with 850 million in it).

There are many more issues, but the basic problem now is: will you allow people to get back on their feet or are you going to drive them into the ground?

Bart Stewart
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Kostas, thanks for the thoughtful reply.

I don't think there's any real disagreement that the proper goal is an economic system that doesn't drive people to homelessness, starvation, and suicide. The question is what is the least destructive way to establish such a system given where you are now.

The unfortunate thing is that long-term stability often requires short-term dislocation. Schumpter's "creative destruction" referenced this -- the hard fact is that if you try to finesse the long-term needs by avoiding short-term pain, nothing ever gets done and you wind up with a disaster instead of a problem. More bailouts (with someone else's money) always look better over the short term; the question is whether they solve the problem or just kick it a little further down the road.

(And this is not some "ha-ha, U.S. wins, Eurozone sucks" chest-thumping, either -- the U.S. itself has already had its credit rating downgraded, depends on trade with a prosperous Europe, and faces its own looming disaster due to a political unwillingness to take any serious action to restrain the growth of taxing and spending on hundreds of entitlement programs.)

It's that practical question of "how" -- and the answers that an economist advocates -- that I'm curious to see applied to a company that manages multiple gameworlds with multiple internal currencies. How much short-term pain will players accept for the promise of long-term stable growth?

There's a reason why economics is known as "the dismal science"....

Christopher Ellington
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I think the fact that Mr. Varoufakis disagrees with the Eurozone's current "solutions" to their crisis is a very promising sign. Germany has repeatedly withheld loans to the peripheral countries on the condition that they undergo savage austerity programs. This might seem right from a moral standpoint of "righteously" punishing "spendthrift" governments, but it has failed miserably in practice. Instead of improving their fiscal and economic positions, it has has actually worsened their positions by causing further decline in their economies. The more they cut, the further they fall, and the worse their overall position gets. This is result of a EU with a united currency but not a united government.

I'm also quite puzzled as to why the current Eurozone crisis is so widely considered to be one caused by overburdened social welfare states. Greece definitely IS overburdened, but that had nothing to do with the current crisis in the EU. After the adoption of the Euro, there was an incredible influx of private capital into small economies like Greece, Ireland, Spain, Italy, and Iceland that led to huge losses when those financial institutions pulled out or when that capital disappeared during the financial crisis. Spain had a fiscal surplus before the crisis hit, so how did its welfare state cause the crisis? Sweden, with one of the largest welfare states in the world, has weathered this entire period beautifully and does not seem to be collapsing under its evil socialist nanny state. Ireland, the nation that has done everything that austerians and conservatives want, has cut its public sector savagely. Where is it's recovery? Greece is probably the only nation in the EU that is actually suffering the kind of problem that many attribute to the entire Eurozone. It DID have huge deficits and a bloated government, but that doesn't justify its example being held up as proof that welfare states are the source of all problems in the current world economy.

In conclusion, I think Mr. Farouvarkis will be a great addition to Valve. The Valve Union of free-to-play economies (the VU, if you will) should greatly benefit from his experience. I think a central bank is in order.

Ramin Shokrizade
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I was interviewed for this position at GDC. I wish Dr. Varoufakis the best of luck at Valve.

William Collins
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Just saw this guy on Max Keiser's show yesterday. Dude gets around.

Chris Christow
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Funny thing, because economist have really no clue what is going on at all and that the guy is a Greek is even more funnier.

I am true believer that to be a successful in the economy, you need a good psychologist and not an economist.

Bernie M
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> served as an economic adviser to former Greek Prime Minister

Well, that's not the .... brightest thing to put on your resume lol...

Bob Charone
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yep not as impressive as 'video game developer'


James Cooley
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Social welfare states eventually collapse. They all do it. There is no solution to the problem other than not setting one up.

That said, the guy may be a great hire for Valve if he can tease out how to make game-world transactions function.

What bedevils a lot of people trying to grasp economics is that people are not rational and IT IS dealing with psychology.

Ian Uniacke
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Well sure. Your theory is 100% correct if you ignore all the successful ones (France, Canada, Australia et al).

Porter Nielsen
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Ian, I think you are "ignoring" the word "eventually" and also the level into which a society embraces entitlement. France is 90% debt to GDP and going up, unemployment is huge and hasn't dropped below 7% for 30 years (That's horrible), and crime is going up.

Coincidentally, Canada and Australia which have embraced socialistic entitlement programs to a far smaller degree than France are doing better financially.

Also look at America, when entitlement programs were small the economy was robust. Under Jimmy Carter entitlements went up and the economy went down. Under Reagan and a little under Bush (1) and Clinton entitlements went down and the economy went up. Under Bush (2), and Obama entitlements went up and the economy went down. So in short I agree with James on this one.

Back on tangent:
I think Valve is going to produce some very interesting results with their economist and I think it is going to go a long way in shaping how people think about payment models for games. This, I believe, will be both a good thing and a bad thing in many cases. I fear some developers will try to fit their games into a free to play model to emulate Valve's success and just end up with a very broken product.

Ian Uniacke
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You say I'm ignoring the word eventually, and then using knee jerk statistical analysis to examine policy in America. The social structure of a society can not be judged in months but decades. Saying that the downturn in economy in America relates specifically to the fiscal policy of the time is at worst ignorant and at best a confusion of correlation versus causation.

In regards to eventually, how long do you suggest we wait? Let one country do it for 1000 years and then if it hasn't failed well ok everyone else start? That's just ridiculous. Also I don't think you know much about the social welfare policies of Australia or Canada if you don't think they are countries that have all but fully embraced social welfare.

Bob Charone
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"France is 90% debt to GDP and going up"

according to the IMF it will will shrink, in fact the European Union as a lower dept to GDP ratio than the United States!

Gil Salvado
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Oh boy, this is going to be interesting ^^

Julian Gosiengfiao
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I've been stumped for the longest time how does one apply real-world economic theory to virtual economic systems - player-driven or not.

Reflexively, I feel like the only intersection between real and virtual is the function of pricing in player-to-player markets, with the rest of the virtual domain being far too specific to the nuances of opt-in "for-fun" participation in a game world, or to the actual mechanics of the game.

I suppose there may be intersection between policy-making and the systems design of games; indeed, this could be very much the same thing. But it also requires a very deep understanding of the incentives that drive participation in online games, and of game design in general. Though I wish Mr. Varoufakis well in his endeavors with Valve, I can't help but fear it may be a case of "economy" being a word misconstrued for too many things - one of them being clever design of item systems, and the other one being managing your virtual shop(s).

That said, I'm eager to see how it turns out with Valve. If there is indeed anything to learn in applying economic theory to microtransaction models, I'm all ears.

Ramin Shokrizade
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I am of the belief that both psychology and sociology are very relevant to virtual economics, just as Adam Smith approached economics from this perspective. Considering that he is considered the father of modern economics, to me this just shows how much the discipline has strayed. Behavioral economics is really the closest thing taught in schools, and in this case it does not appear that this economist is trained in this. To my knowledge I am the most published researcher in this field, if you want further understanding you can check my blog where I have almost 30 papers posted on the subject:

Kostas Yiatilis
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Μπράβο Γιάννη!

John Mawhorter
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What really needs to happen is for politicians to hire game designers to fix their economies...