Private space

“Game Theories”: My article for The Walrus on the economic life of virtual worlds

The Walrus a cool new political magazine up in Toronto — just published a piece I wrote on Edward Castronova, a brilliant economist who pioneered the study of how money, value, and property flow inside online games like Everquest. It starts off talking about Castronova’s well-known work on the Everquest economy, in which he realized that the game’s annual GDP is almost as big as Russia’s. Then the article goes on to talk about the ways in which different questions about economic fairness are reflected in these games.

It’s already been Slashdotted, so you can read the discussion there if you want. While you’re at it, also check out Terra Nova, an excellent blog on virtual-world economics that Castronova contributes to. (Castronova’s personal site is here.)

The story is online at The Walrus, but since it’s currently struggling under the enormous load from Slashdotters, I’ve mirrored the piece here:

Game Theories
On-line fantasy games have booming economies and citizens who love their political systems. Are these virtual worlds the best place to study the real one?

By Clive Thompson

EDWARD CASTRONOVA HAD HIT BOTTOM. Three years ago, the thirty-eight-year-old economist was, by his own account, an academic failure. He had chosen an unpopular field — welfare research — and published only a handful of papers that, as far as he could tell, “had never influenced anybody.” He’d scraped together a professorship at the Fullerton campus of California State University, a school that did not even grant Ph.D.s. He lived in a lunar, vacant suburb. He’d once dreamed of being a major economics thinker, but now faced the grim sense that he might already have hit his plateau. “I’m a schmo at a state school,” he thought. And since his wife worked in another city, he was, on top of it all, lonely.

To fill his evenings, Castronova did what he’d always done: he played video games. In April, 2001, he paid a $10 monthly fee to a multiplayer on-line game called EverQuest. More than 450,000 players worldwide log into EverQuest’s “virtual world.” They each pick a medieval character to play, such as a warrior or a blacksmith or a “healer,” then band together in errant quests to slay magical beasts; their avatars appear as tiny, inch-tall characters striding across a Tolkienesque land. Soon, Castronova was playing EverQuest several hours a night.

Then he noticed something curious: EverQuest had its own economy, a bustling trade in virtual goods. Players generate goods as they play, often by killing creatures for their treasure and trading it. The longer they play, the more powerful they get — but everyone starts the game at Level 1, barely strong enough to kill rats or bunnies and harvest their fur. Castronova would sell his fur to other characters who’d pay him with “platinum pieces,” the artificial currency inside the game. It was a tough slog, so he was always stunned by the opulence of the richest players. EverQuest had been launched in 1999, and some veteran players now owned entire castles filled with treasures from their quests.

Things got even more interesting when Castronova learned about the “player auctions.” EverQuest players would sometimes tire of the game, and decide to sell off their characters orvirtual possessions at an on-line auction site such as eBay. When Castronova checked the auction sites, he saw that a Belt of the Great Turtle or a Robe of Primordial Waters might fetch forty dollars; powerful characters would go for several hundred or more. And sometimes people would sell off 500,000-fold bags of platinum pieces for as much as $1,000.

As Castronova stared at the auction listings, he recognized with a shock what he was looking at. It was a form of currency trading. Each item had a value in virtual “platinum pieces”; when it was sold on eBay, someone was paying cold hard American cash for it. That meant the platinum piece was worth something in real currency. EverQuest’s economy actually had real-world value.

He began calculating frantically. He gathered data on 616 auctions, observing how much each item sold for in U.S. dollars. When he averaged the results, he was stunned to discover that the EverQuest platinum piece was worth about one cent U.S. — higher than the Japanese yen or the Italian lira. With that information, he could figure out how fast the EverQuest economy was growing. Since players were killing monsters or skinning bunnies every day, they were, in effect, creating wealth. Crunching more numbers, Castronova found that the average player was generating 319 platinum pieces each hour he or she was in the game — the equivalent of $3.42 (U.S.) per hour. “That’s higher than the minimum wage in most countries,” he marvelled.

Then he performed one final analysis: The Gross National Product of EverQuest, measured by how much wealth all the players together created in a single year inside the game. It turned out to be $2,266 U.S. per capita. By World Bank rankings, that made EverQuest richer than India, Bulgaria, or China, and nearly as wealthy as Russia.

It was the seventy-seventh richest country in the world. And it didn’t even exist.

Castronova sat back in his chair in his cramped home office, and the weird enormity of his findings dawned on him. Many economists define their careers by studying a country. He had discovered one.

I FIRST MET CASTRONOVA AT A PIANO LOUNGE last summer at the Caesar’s Palace casino in Las Vegas, where he was attending a high-tech conference. We talked over a few drinks, though our conversation was soon drowned out by the bar’s syrupy Frank Sinatra impersonator, belting out a version of “New York, New York.” Castronova winced. “Where better in the world to talk about virtual worlds than Las Vegas?” he said. “This place invented the idea of virtual life.”

Castronova is a natural role-player. He’s a short, nebbishy guy with a neat goatee and horn-rimmed glasses. When he lectures he radiates charisma; he is the cool professor you wish you’d had when you were trying to grasp the dry mechanics of price theory. Until recently, he acted in a Shakespearean troupe, and in his spare time he explores the world of “multiple-user domains” — Internet chat environments where people assume different personae as they hang out together.

Castronova suspects his eclectic background is why he never made the powerful connections necessary to secure a good academic job. “I’ve always been an outsider. I’ve just been floating around outside communities, sort of flitting from topic to topic,” he said.

With virtual worlds, he had finally hit upon a subject that was exploding into the mainstream. Experimental online worlds had been kicking around for years, but they took a leap forward in 1997, when Ultima Online — a medieval fantasy world similar to EverQuest — launched, and quickly amassed a hundred thousand users. The idea of having a second life on-line suddenly didn’t seem so geeky, or, at the very least, it seemed a profitable niche; companies like Sony and Microsoft swarmed on-line. Today there are more than fifty active games worldwide, and anywhere from two to three million people playing regularly in the U.S. The games range from Star Wars Galaxies (where you can wander around as a Wookie and fight the Dark Side) to There.com (where you can wander around Disneyfied islands as an attractive Gap-style model and admire your hot new body). In Korea, a single game called Lineage claims more than four million players.

To figure out precisely who was playing EverQuest, Castronova persuaded thirty-five hundred users to fill out a survey. As one might expect, the average age turned out to be twenty-four, and the players were overwhelmingly male. The amount of time spent “in game” was staggering: over twenty hours a week, with the most devoted players logging six hours daily. Twenty percent of players agreed with the cheeky (if alarming) statement “I live in Norrath but I travel outside of it regularly”; on average, each of these “residents” possessed virtual goods worth about $3,000 U.S. “When you consider that the average real-life income in America is only, like, thirty-seven thousand,” Castronova tells me, “you realize these people have a non-trivial amount of wealth locked up inside the games.”

When he finished his research, Castronova assembled it in a paper called “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier.” He submitted it to an academic Web site, the Social Science Research Network, that distributes working papers, free for anyone to read. The site has 43,982 papers, by more than 37,000 authors. He didn’t expect too much. “I thought maybe seventy-five people would read it,” he recalls, “and that’d be great.”

He was wrong. The paper sent a shock wave through the on-line world. EverQuest players pounced on it and wrote up excited descriptions on game-discussion boards. That led to a flurry of posts on popular blog sites. Soon, academics and pundits in Washington were rushing to read it. Barely a few months later, Castronova’s paper became the most downloaded paper in the entire database — beating out works by dozens of Nobel laureates. Today, it’s still in the top three.

WHY THE RUSH OF INTEREST? What can a game filled with elves and warrior dwarves tell us about the real world?

Quite a lot, if you believe the economist Edward Chamberlin. In 1948, Chamberlin admitted that all economists face a critical problem: they have no clean “laboratory” in which to study behaviour. “The social scientist … cannot observe the actual operation of a real model under controlled circumstances,” he wrote. “Economics is limited by the fact that resort cannot be had to the laboratory techniques of the natural sciences.” Instead, classical economics tries to predict economic behaviour by theorizing about a completely fair marketplace in which people are rational actors and all things are equal.

The problem with this — as plenty of left-wing critics have pointed out — is that all things aren’t equal. Some people are born into rich families, and blessed with great opportunities. Others are born into dirt-poor neighbourhoods where even the most brilliant mind coupled with hard work may not forge success. As a result, economists have warred for centuries over two diverging visions. Adam Smith argued that people inherently prefer a free market and the ability to rise above others; Karl Marx countered that capital was inherently unfair and those with power would abuse it. But no pristine world exists in which to test these theories — there is no country with a truly level playing field.

Except, possibly, for EverQuest, the world’s first truly egalitarian polity. Everyone begins the same way: with nothing. You enter with pathetic skills, no money, and only the clothes on your back. Wealth comes from working hard, honing your skills, and clever trading. It is a genuine meritocracy, which is precisely why players love the game, Castronova argues. “It undoes all the inequities in society. They’re wiped away. Sir Thomas More would have dreamt about that possibility, that kind of utopia,” he says.

Virtual worlds have produced some surreal rags-to-riches stories. When the on-line world Second Life launched, the players were impressed to see a female avatar industriously building a sprawling monster home. An in-game neighbour stopped by to say hello only to discover she was a homeless person in British Columbia, logging on using her single remaining possession, a laptop. Penniless in the real world, she belonged to a social elite in the fake one.

Not all social inequities are absent, of course. For instance, Castronova discovered that women in the game are worth less than men, in a very measurable way: when he compared the sale of male and female avatars, he found than female characters sold for 10 percent less than male ones at precisely the same power level. Players with female avatars also say it’s harder to advance in the game, at least initially — even though the female characters are often being played, in real life, by men. (A study by the game academic Nick Yee found that male players “cross-dress” as female characters at least one-third of the time.) Men play as women characters partly for the kinky thrill, but also because female characters are given random presents of free stuff by other players, a chivalric custom known as “gifting.” “Personally, you receive a lot more stuff when you start out as a female,” as one male cross-dresser wrote to Yee.

Ultimately, Castronova says, EverQuest supports one of Adam Smith’s main points, which is that people actually prefer unequal outcomes. In fact, EverQuest eerily mirrors the state of modern free-market societies: only a small minority of players attain Level 65 power and own castles; most remain quite poor. When game companies offer socialist alternatives, players reject them. “They’ve tried to make games where you can’t amass more property than someone else,” says Castronova, “but everybody hated it. It seems that we definitely do not want everybody to have the same stuff all the time; people find it boring.” It is a result that would warm the heart of a conservative.

Yet progressives, too, have been drawn to Castronova’s research. Robert Shapiro, formerly an undersecretary of commerce for Bill Clinton, views the economist’s findings as nothing less than a liberal call-to-arms. EverQuest players tolerate the massive split between the virtual rich and the poor, Shapiro tells me, only because they know that this is a level playing field. If you work hard enough, you’ll eventually grow wealthy. In Shapiro’s view, Castronova’s research proves that the only way to create a truly free market is to support programs that give everyone a fair chance at success, such as good education and health care. “This may provide the most important lesson of all from the EverQuest experiment,” he wrote in an essay. “Real equality can obviate much of a democratic government’s intervention in a modern economy… . If EverQuest is any guide, the liberal dream of genuine equality would usher in the conservative vision of truly limited government.” In other words, maybe the best way to save the real world is to make it more like EverQuest.

A FEW MONTHS AGO, A POWERFUL WARRIOR SHOWED UP on EverQuest. He was at Level 50, an indication that he was an experienced player. But when he tried to join a group of other similarly powerful players on a quest to kill a dragon, they quickly realized he had no idea what the hell he was doing. He didn’t understand teamwork or even the basic language of the game. Then they discovered his secret: he was a thirteen-year-old kid whose parents had gone to PlayerAuctions.com and bought him the character for $500.

“He kept getting killed over and over and over again. People were like, Who is this idiot?” says Sean Stalzer, a thirty-three-year-old who is a five-year veteran of EverQuest. Stalzer runs The Syndicate, one of the game’s most respected “guilds.” Guilds are groups of powerful characters who co-operate to defeat the deadliest monsters (which provide the richest loot). The most elite guilds generally have a no-buying ethic. They accept only players who have “levelled up” their characters the old-fashioned way. “They put hours and hours into it,” Stalzer says. “So when someone comes along to make a profit or buy a character, it makes a mockery of what they do. Why should you be better than me because you have more money?” His disdain is like that of a hardscrabble kid from the projects who works for years to get into Yale — only to watch George W. Bush sail in because his daddy is a rich donor.

This culture war underscores the big irony of EverQuest politics. Sure, most players love a level playing field — but they love a leg up even more. Adam Smith might smile at EverQuest’s booming marketplace, but beneath the surface, Marx’s bleaker vision of capital might be winning the day.

Of course, many people buy “pre-levelled” characters not to cheat at the game, but to save time. They’re usually busy professionals who can’t waste six numbing hours a day killing bunnies to make their warrior elf more powerful. Game companies frown on the selling of characters because they feel it destroys the meritocratic feel of their worlds. But because so many millions of players clearly want to buy their way to power, the companies have mostly turned a blind eye to the on-line auctions. Last year, Ultima Online caved in and began to sell “pre-levelled” characters to new players; demand was so high on the first day that their phone banks crashed.

Even the most stoic guild members are tempted by the booming market. Stalzer’s guild was once offered $50,000 for all of its characters and loot. The members declined. But, sometimes, when individual guild members run into financial difficulties in the real world, they quietly pawn off virtual goods on the side. “One guy had an ‘Enchanter’ and he sold it for two thousand dollars,” Stalzer tells me. “That happens a lot. You get a guy who says, ‘Dude, I just graduated and I can’t find a job, so I gotta sell this thing.’ But I don’t mind it when it’s real financial need.”

Guild members hesitate to sell their goods in part because they do not feel they are the sole owners. When a guild vanquishes a monster, it divides the loot among the members. Each player’s booty winds up feeling more like a piece of communal property. At the Las Vegas computer conference, Castronova and I ran into a blue-haired nineteen-year-old who plays EverQuest as a Level 55 “cleric” in a powerful guild. “I’ve got dozens of reagents, these magical potions,” she said. “And some of them are probably worth, like, a hundred bucks apiece. I could totally sell them. But I always think, damn, I only have this stuff because of how other people helped me get it. So they sort of own it, too. It’s not my right to sell it.” In EverQuest, even socialism finds a home.

WITHIN MONTHS OF ULTIMA ONLINE’S LAUNCH in 1997, the game spiralled into a currency crisis. The developers woke up one morning to discover that the value of their gold currency was plummeting. Why? A handful of sneaky players had discovered a bug in the code that allowed them to artificially duplicate gold pieces (called “duping”). The economy had been hit by a counterfeiting ring. Inflation soared, and for weeks, players would log in each day to find their assets worth less and less.

Ultima programmers soon fixed the bug. But then they had a new problem: How do you drain all the excess gold out of the economy and bring prices back to normal? They hit upon the idea of creating a rare type of red hair dye and offering it for sale in small quantities. It had no real use, but, because it was rare, it became instantly popular and commanded an enormous price — which leached so much gold out of the system that inflation subsided. But the programmers had to meditate for hours on what possible side effects their “fix” might have.

Game designers are, in a sense, the government of their worlds, continually tweaking the system to try and keep it from ruining the lives of their “citizens.” In essence, they face the political question that bedevils real-life politicians everywhere: How much should a government meddle in the marketplace?

In Ultima Online, players pick jobs and produce goods: blacksmiths make iron tools; tailors make shirts. In the early days, the players were forced to find other players to buy the stuff. They had to act like entrepreneurs and, as it turned out, few people really wanted to do that; they just wanted to do their jobs and get paid. So the game designers created “shopkeepers,” robot characters that would automatically buy whatever goods the players made. This forced the designers to behave like Soviet central planners, micromanaging every aspect of the marketplace with arcane algorithms of supply and demand. How much would a chair be worth, compared to a rabbit skin? If horseshoes were suddenly in low supply, how would that affect the price of magical healing potions? How much inflation is too little, or too much?

Citizens, too, began to complain that the economic system was bafflingly arbitrary. One irate player pointed out that a spool of thread could be bought for two gold pieces, then instantly transformed by a tailor into a shirt worth twenty gold pieces — a profit margin that massively overshot any other activity, for no apparent reason. Eventually the game designers mostly gave up, and built a system in which players could trade more easily among themselves. The Berlin Wall fell, and capitalism rushed in.

The free market made things more fluid, but also more unfair. Soon, rich players drove the price of basic goods so high that poor players became much poorer. Once again, the designers had to step in. They would “drop” objects in places where new players could easily scavenge them, giving them a chance to amass a bit of wealth. The designers also set up programs to buy the otherwise useless items generated by poor players (such as animal skins) to give them a chance to make money. In essence, they created handouts for the disadvantaged. Ultima Online had morphed into a modern welfare state, where a free market coexists uneasily with an activist government. “As a developer, I would love to leave it all as a free market,” says Anthony Castoro, one of Ultima Online’s first designers. “But people who are new to the game would have nothing, and the big players would have everything.”

A YEAR AFTER CASTRONOVA BEGAN HIS WRITINGS ON THE FIELD, on-line games were sufficiently mainstream that he was a media celebrity, with CNN, National Public Radio, and endless newspapers calling him for comment. But economists at universities still weren’t impressed. Castronova submitted his original EverQuest paper to a few economics journals. They rejected it instantly. One reviewer wrote a snippy note saying he preferred “to stick with things that are real rather than virtual.”

One can appreciate the economists’ confusion. Even the most highly valued virtual goods do not seem, in some essential way, real. An Axe of the Heavens may be great for killing virtual orcs, but it cannot be enjoyed in the physical world. You can’t eat virtual food to stay alive. But that distinction shouldn’t matter — at least not in economics, which is, as Castronova never tires of pointing out, the study of the entirely arbitrary values that people ascribe to things. “Most of a diamond’s value is virtual, too,” he adds.

The ultimate proof of this idea is in the game world’s emerging merchant class — people who make their real-world income purely by “flipping” virtual goods. Much of their everyday jobs is conducted within the game.

One of these merchants is Robert Kiblinger, a thirty-three-year-old West Virginian. A commercial chemist by training, he worked for Febreze, the company that invented the popular cleaning agent, for which he still holds a couple of patents. (“I was basically selling perfumed water,” he jokes.) But then he started playing Ultima Online, where he ran into a player who was tired of the game and wanted to sell his entire account. The player owned two houses and towers and oodles of rare items, and only wanted $500, which Kiblinger figured was a steal. He drove to Cincinnati to close the deal. “I met him in a Taco Bell parking lot and I gave him a cheque,” he recalls. The next day, they met inside the game, and the seller handed over the virtual goods. Kiblinger turned around and resold the whole shebang a few days later to another player on eBay for $8,000, producing a tidy profit.

He was hooked. He began buying up items from anyone who was willing to sell, and set up a Web site — UOTreasures — to advertise his inventory. Today the site gets thirty-five thousand visitors a week. Kiblinger employs five hundred people inside the game, paying them a small stipend (in Ultima Gold and cash) to act as virtual couriers, scurrying around inside the game to deliver the goods to the players who’ve paid for them. A few elite customers have bought more than $20,000 of stuff from him. A couple of years ago, business was so good that Kiblinger quit his job as a research associate at Procter & Gamble to work full-time as a virtual vendor, though he won’t tell me his exact income. “It’s in the six figures,” he says. “It’s a decent living.”

Kiblinger introduced me to one of his clients, Becky Ruttenbur, a thirty-seven-year-old woman in Montana. Outside the game she’s a single mother; inside she is “married” to another virtual character, played by a soldier who is currently stationed in Iraq. Ruttenbur and the soldier have a joint house and property in the game, even though the soldier is married in real life. Such in-game polygamy is common; Ruttenbur has even met her cyberhusband’s real-life wife, and says, “She thinks we’re nuttier than you could imagine.” After playing Ultima Online for five years, Ruttenbur has a huge estate of in-game property, including a set of potted plants that goes for an average of $75 in real U.S. dollars on an auction board. Her stash of on-line goods would fetch $15,000 if she sold it.

Now there’s a company rich enough to buy the entire lot. Three years ago, a company called IGE, whose sole function is to buy and sell virtual goods, launched. I met one of the company’s founders, Brock Pierce, at a gaming conference in New York. A fresh-faced, blond twenty-three-year-old who is based in Boca Raton, Florida, he said IGE has “thousands of suppliers” who scout the games all day long to find cut-rate goods. He has a hundred full-time staff members at an office in Hong Kong to handle customer service. On any given day, he says, they handle “several million dollars’” worth of virtual inventory.

Several million? “We’re ten times the size of anyone else,” Pierce bragged. Many players call IGE the Wal-Mart of virtual games. But it is more like a Morgan Stanley or a Long Term Capital Management, a company whose holdings are significant enough to singlehandedly affect the cash flow of the markets.

Of course, every booming economy has not only its white-shoe financiers but also its lowly offshore workers. A few years ago, a company called Black Snow Interactive opened up a “levelling” service for the game Dark Age of Camelot. It had a digital sweatshop in Mexico; there, ultra-low-wage workers would click away at computers, playing the characters twenty-four hours a day to level them up. Mythic, the company that runs Dark Age of Camelot, got wind of the scheme and closed down Black Snow’s accounts and auctions. The operators vanished, and have not been heard of since.

An even more intriguing financial institution opened for business a few months ago: the Gaming Open Market. Based in Toronto, it is an on-line service that exists solely for trading the currencies of virtual games ? Gold/Silver from Horizons, Linden Dollars from Second Life, Therebucks from There.com. If you’re a player who wants some quick virtual currency for your favourite game, you can buy it there using real-world U.S. cash. Sometimes people who play several different virtual games use the market to transfer money from one world to another, like travellers at an airport exchanging currencies.

As on Wall Street, the value of each game currency fluctuates wildly depending on how badly it’s needed. “It’s just supply and demand. If somebody really wants a currency, it can drive the price sky-high,” says Jamie Hale, the thirty-year-old founder of the Gaming Open Market. The day I spoke to him, a single player had bought every Linden Dollar on the market, about $500 (U.S.) worth. It cleaned out the Market’s entire stock and produced a sudden spike in the Linden Dollar’s value. Sometimes Hale himself will jump in to do some quick currency trading if he spots a profitable spread. He admits he has no official training in finance; in fact, he’s a programmer by trade, and his co-founder — who helped write the Market’s software — is an astrophysicist. “We keep a bunch of economics texts on my shelf to appear smart,” he jokes.

Hale’s operation is still small, with only nine hundred users. But, as it grows, it could conceivably produce a virtual George Soros — someone who amasses so many billions of units of a currency that he could provoke a crisis in that game’s economy for the purposes of profiting off it, much as Soros destroyed the British pound in September, 1992. “The value of the currency would drop through the floor,” Hale notes. “But that’s the game company’s problem.”

AS VIRTUAL WORLDS INCREASINGLY MIRROR THE REAL ONE, game companies are already dealing with another problem: crime. Indeed, there’s even organized crime in The Sims Online, the cyberspace version of the top-selling computer hit. In the game, players assume control of tiny suburbanites, build houses, and work at jobs to earn “Simoleans,” the in-game currency. The Sim Mafia was founded by Jeremy Chase, a twenty-six-year-old in Sacramento. Players who want to destroy another character’s reputation turn to the mob. The game has a system of black marks for punishing bad behaviour. If Chase is paid to “tag” someone, he gets his crime family — a loose collection of a hundred players — to place dozens and dozens of red tags on the victim. When they’re done, other players will assume the character must have done something awful, and refuse to speak or trade with him.

Peter Ludlow, a professor of philosophy at the University of Michigan, became fascinated by The Sims Online last year and founded a blog — “The Alphaville Herald” — that reports on interesting social situations inside the world. Last November, he discovered something truly strange: The game had a chain of cyber-brothels, run by a family of avatars, all played by a character named “Evangeline.” Evangeline had organized a handful of Sim women to perform hot-sex chat inside the game for customers, who paid in Simoleans. “Girls set their own prices,” she told Ludlow. “Bj’s” were 20,000 Simoleans, the equivalent of roughly $4.50 (U.S.); Evangeline reserved the richest customers for herself, making up to $40 or $50 (U.S.) a trick. Ludlow later discovered that some of Evangeline’s “girls” were underage girls in real life, and that Evangeline herself was a seventeen-year-old boy living in Florida. When he blogged about his findings, reporters nationwide snapped to attention, and soon The Sims Online was on the front page of The New York Times.

Maxis — the company that runs the game — struck back. They cancelled Ludlow’s account, claiming he had broken the game’s rules by advertising his blog inside the world. (Maxis prohibits anyone from advertising real-world services or goods inside the game.) Ludlow insists he never made a dime off “The Alphaville Herald,” and that he was booted out solely because his research had embarrassed the game company.

Either way, Ludlow lost most of his goods. When game owners cancel your account, it’s like having your house instantly destroyed in a fire: your property winks out of existence. Ludlow figures he had about two hundred dollars’ worth of virtual goods deleted, including a pet cheetah (“which is like a fifteen-dollar animal”) that he’d bought from a vendor on-line. Yet Maxis could not entirely delete his virtual wealth. A week before his account was deleted, Ludlow had deposited eight hundred thousand Simoleans into an account at the Gaming Open Market. And Maxis has no power over the Market; it cannot forcibly demand that Hale, the owner of the exchange, delete that money. In effect, Ludlow had parked his money in the virtual-world equivalent of an overseas bank, where no game government could touch it.

LUDLOW’S CASE POINTS TO THE ULTIMATE QUESTION, with enormous legal implications for the real world: What, precisely, is the legal status of virtual property? Does anyone actually “own” it?

Last November, I accompanied Castronova to a legal conference in New York devoted to this subject. There game-company executives argued that when a player joins a world such as Ultima Online, he or she agrees to a user licence that explicitly says the game company owns everything that happens on the servers. “It’s a game, and what we’re doing is inviting you in to play with the toys. But you don’t own the toys. We do,” said Richard Bartle, who pioneered the first virtual world back in the 1980s.

The problem is that people who play the games act as if their virtual castles were their own private property. And, when it comes to property issues, courts in the U.S., at least, have traditionally tended to take the view that if it quacks like a duck, it is a duck. If enough people treat their Robe of Primordial Waters as though it’s genuine personal property, the law might respect that — no matter what the game companies say.

This debate may appear rather abstract right now. But, sooner or later, one of these game companies will start losing money and decide it can’t afford to keep its virtual world. (Many observers expect at least one major world to go bankrupt this year.) If a game shut down, it would instantly destroy hundreds of thousands — perhaps even millions ? of dollars. The homeless woman with the virtual mansion, for instance, could probably sell her goods for several hundred dollars; she would lose her single most valuable possession.

For now, there is no clear precedent on how to deal with virtual property. Owning a virtual castle is not like owning other virtual things, such as stock in a company, because the value is not in an external, tangible object such as a corporation, but in the work and money invested in acquiring it.

With stakes like that, said Jack Balkin, a Yale law professor and a host of the legal conference, players will probably fight back with lawsuits, or by going right to politicians, demanding legislation to prevent worlds from closing down. Julian Dibbell, a journalist who began trading virtual goods himself last summer — he aims to report “revenue from the sale of virtual goods” as the single biggest line-item on his 2004 tax return — later suggested an even stranger scenario. He said that players could well band together and try to buy back the world at the company’s bankruptcy hearing — and then run it themselves as a breakaway republic. “Some renegade players have done things like that before, actually,” he noted. “They’ve gotten access to the code of the game and then illicitly created their own duplicate world.”

In a few years, these questions will creep into the mainstream, because online environments such as EverQuest are likely to become a significant way that people interact with the Internet. Only a small chunk of the population will ever go into a brooding medieval-fantasy such as EverQuest, but virtual worlds have emerged that are much friendlier, and do not use dungeons-and-dragons themes at all. Indeed, they’re not even games: they have no goals, no “levels” to achieve, no points to score.

There.com, for example, is a 3-D world devoted to nothing but chatting and socializing, using avatars that look like seductive, attractive models. You’d probably prefer it to real life, because everything is just so much prettier in There. As in the real world, one of the main activities in There is shopping. The company created a currency, Therebucks, and tied it directly to the value of the American dollar to prevent inflation. Players spend a lot of time customizing their appearance (often for the purposes of flirting), so Nike and Levis have virtual clothes that they sell solely inside the game. Individual players, too, have become designers, creating outfits they sell to other There citizens. “One of the leading clothes designers is making $3,000 to $4,000 a month, which is a full-time job,” says There’s founder, Will Harvey.

A place like There is not so much a game as a platform for life. A large chunk of our everyday experiences — meetings, conversation, music, shopping ? could port nicely to a 3-D space. There Inc. is already talking to companies about licensing “land” inside the game, so far-flung employees can conduct meetings there instead of on the old-fashioned Internet. It’s not as far-fetched as it sounds. The U.S. military has already licensed a private chunk of There and created a simulation of the planet on it. The army is currently using the virtual Baghdad in There as a training space for American soldiers.

The prospect of life moving into an area such as There both amazes and terrifies Balkin. “So, what happens when people start doing therapy inside a virtual world?” he asked. “Or teaching? It’s a convenient place to meet, but literally everything can be recorded. So what do you do when doctors are meeting to talk with patients in a virtual world?”

Castronova sighs. Though he has made his career out of studying these economies, he is dismayed by how the real world has bled into the virtual one. “I liked it better when they were just, you know, games,” he says wistfully. He preferred the meritocratic feel of EverQuest, before all the duping and the auctions and the bidding wars for powerful avatars. He liked the idea of on-line worlds as a place you migrated to when, like an immigrant, you wanted a new lease on life — just as three years ago, when, depressed and lonely, he first stumbled into EverQuest.

His own voyage had a good ending. A few months ago, the communications department at Indiana University in Bloomington called. They had read his work and wanted to talk. Weeks later, they offered him a fully tenured position in a new department. Castronova had still never published a single one of his EverQuest papers in print; all his analyses had been distributed on-line. “It’s all PDFs and Web sites,” he joked. Like an avatar in the game, he had levelled up.

Clive Thompson writes about science and technology for The New York Times Magazine, Wired, and Details, and runs the tech-culture blog collisiondetection.net.

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I'm Clive Thompson, the author of Smarter Than You Think: How Technology is Changing Our Minds for the Better (Penguin Press). You can order the book now at Amazon, Barnes and Noble, Powells, Indiebound, or through your local bookstore! I'm also a contributing writer for the New York Times Magazine and a columnist for Wired magazine. Email is here or ping me via the antiquated form of AOL IM (pomeranian99).

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Collision Detection: A Blog by Clive Thompson