Challenges and Opportunities in Economics Experiments in Virtual Worlds

[Author Affiliation]Ernan Haruvy, , , , eharuvy@utdallas.edu1. BackgroundVirtual worlds have been recognized as a source of economic insights for at least 10 years (e.g., Castronova 2001). Since then many new virtual worlds have risen, others have declined or disappeared, and yet others have evolved, particularly in terms of their economies.1 Despite the ups and downs, the populations of virtual worlds are growing at a steady pace. Kaneva, a recent social networking site with three-dimensional interactions, reports 1.5 million users. South Korean Lineage, a medieval fantasy world, reported at one point more than 3 million subscribers, most of them located in South Korea, but this number has since dropped considerably. The publishers of the role-playing game World of Warcraft report 12 million active subscribers. Second Life, a virtual world dedicated more to commerce and social interactions and less to role playing, recently reported around 13 million residents, but the number of active users, harder to gauge as a result of free membership, is likely far smaller. Thus, virtual worlds clearly merit serious research by social scientists, and questions addressing important legal, ethical, taxation, and economic issues pertaining to virtual worlds have been explored in the academic literature (e.g., Castronova 2001, 2002, 2004, 2005; MacInnes 2006; Malaby 2006).In this article and this symposium issue, the focus is on economic experiments, including one natural experiment. One of the goals of experimental economics is to map demographic and situational characteristics as well as economic incentives to economic behavior through simple and replicable economic games. Thus, some virtual world experiments involve the use of virtual worlds as a laboratory. This can be done with the introduction of economic games studied in the laboratory to virtual world conditions, with attention to the particular environments, inhabitants, features, contextual effects, and norms of virtual worlds. Studies such as those of Atlas (2008); Atlas and Putterman (2011); Chesney, Chuah, and Hoffmann (2009); Fiedler (2009); Fiedler and Haruvy (2009); Fiedler, Haruvy, and Li (2010); Fullbrun, Richwien, and Sadrieh (2011); and Spann et al. (2010) have brought the dictator, ultimatum, and trust games to virtual world environments. These authors have explored whether these games, when played in virtual worlds, exhibit similar patterns to those observed in the laboratory. They further explored how particular features that are critical in virtual worlds, such as communication and social interaction (Fiedler 2009; Fiedler and Haruvy 2009; Fiedler, Haruvy, and Li 2010) or contextual cues (Atlas and Putterman, 2011), affect outcomes.Fullbrun, Richwien, and Sadrieh (2011) run a trust game in Second Life and offer a review of the literature on trust games run in virtual worlds, as compared to findings in non-virtual environments. They find evidence for less investment by virtual world investors compared to non-virtual environments, but they also find higher proportional returns by the trustees in the virtual world compared to non-virtual experiments.The interest in comparing virtual to non-virtual environments is not limited to comparisons between abstract physical lab experiments and the virtual lab. Comparisons can also be made on the realism with which participants in virtual experiments perceive the environment. Thus, whereas the general task in the physical lab is to create an abstract representation of a decision-making environment, a possible goal in the virtual lab is to create the decision-making environment in a manner that is as close in perception as possible to the actual decision-making environment the participant would face in the physical world (Harrison, Haruvy, and Rustrom, 2011). Virtual world economies could also be studied (and implicitly compared to non-virtual economies) through natural experiments generated by changes in the regulatory structure of economies in virtual worlds (Bloomfield and Cho 2011). …