The Economy of VGMix

by Marty Alchin on June 28, 2007

A recent commentary from Kevin Cheng regarding a dating site got me thinking about economics in general, and how the in-site economy of VGMix might play out. It’s interesting to consider economics in a non-financial sense, and doing so has made me very glad for some of the things we’re doing with VGMix.

Essentially, the purpose of an economy in these environments is to encourage certain types of user behavior, while discouraging others. This same approach is used in the real world too, but it’s often overlooked. In the example Kevin analyzes, much of the economy is driven by taxes, something we’re all familiar with. Certain behaviors (such as use and development of alternative fuels) are encouraged by tax reductions, while others (such as smoking or drinking) are discouraged by increased taxes.

VGMix, however, will be employing a more complex structure than iminlikewithyou, and a slightly different analogy is necessary to describe it. Essentially, VGMix uses multiple types of currency, with rewards and penalties for various actions. The driving force behind user behavior is then the exchange rates among these various currencies.

Certain actions will cost you, while others are free, but most will reward you, and always with a different currency than what you put in. The exact costs and rewards of various actions effectively create exchange rates amont the currencies. Each user is then able to determine which currency is most valuable (since each has different properties), and which actions would best allow them to amass that currency.

It’s a very intriguing system from an economics perspective, and as the release approaches, I’ll probably do a more detailed writeup of how it all works. The exciting thing to me is that all the costs and rewards are configurable at any time, which means the exchange rates are effectively adjustable. If certain actions are prohibitively expensive, or if people manage to abuse the system, we can make adjustments for everyone’s benefit.

I’ll do a more detailed writeup in the not-so-distant future, so I can describe it all properly, and hopefully explain why it’s so fascinating.