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An Attempt at Understanding Aspects of Economics: Brain Implosion Incoming

Today I venture into dangerous waters seeking understanding. 

Eve is a game of economics. The goal of player created items and resource acquisition as a base structure for the entire video game world caused a subtle shift sideways for the players. Numbers matter and good decisions vs bad decisions can make or break an activity.

Instead of heading to the Princess of High Vale and receiving a quest to vanquish the Iron Dragon with a reward of gold and a fine sword, people had to go out and farm for food. After they farmed they had to chop down trees, mine ore, build a house, breed and raise horses, forge their sword, make their own armor and head off to vanquish the dragon only to discover that the princesses reward would not cover their taxes for the property they now managed. Also, their sword making skills were better then what the princess happened to have on hand. They had leased out their land to someone else and the apprentices that they had trained at their forge had maintained it while they were gone. The horse breeding business had expanded to a cattle operation as well and their mine had struck a vein of gold. Now they found themselves managing their entire estate, the head of the dragon they had slain behind them and the kingdom now coming to them for personal loans.

I started the game with an eye on building and making my own things. I was quickly diverted from that but I still kept a taste for basic mining and acquisition of items. I was often told that I should stop it and instead just buy the items, letting other people do the work because of opportunity costs. For a while I had the 'what I mine is free' idea and people are sure to lay you down carefully and beat you with heavy sticks when that phrase comes out.

As I started the manage my store completely, again the suggestions came that I needed to have other people haul my items for me. Whenever I asked why, I was told 'opportunity costs'. I decided to go to Wikipedia and look it up and figure out if what I was thinking about and what people were saying were the same. I had some questions and no understanding of economics beyond the basic level absorbed in day to day life. I found myself being given advice or arguments and not having enough understanding to formulate any reasonable opinion. It is easy enough to exist this way but I have reached a point where I want to do better and to do so I must learn.

Plus, reading about economics is a normal part of improving oneself in a video game, right?


Opportunity Costs is defined as:
"In microeconomic theory, the opportunity cost of a choice, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources, is the value of the best (that is, the most lucrative) alternative forgone (not chosen). Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.[1] The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen". Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".[2] The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.[3] Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs."
This base model is highly reflective of playing Eve. Eve is focused around time. Time is the biggest factor in the game because we can not manipulate it. We can not regain it once we have lost it. Not only is the game focused around time but life is also focused around time. There is the time to play the game vs the time to do things in the game. It becomes a matter of choices where the best choice decreases the payment of time and increases the 'stuff I want to do'.

Therefore, instead of mining the ore, buying the blue print, building the item, using the items we skip to buying the item and using the item. The buying and using may cost more in ISK on hand but with the immediate acquisition of the item the 'stuff I want to do' is activated and more ISK or fun can immediately be gained. This makes this the better decision.

I often find myself disagreeing with the concept in relation to playing Eve. I have two questions I have been trying to solve.
  1. Who does the stuff that is not worth doing?
  2. If I am not doing anything else, why am I in the wrong to do something productive?
In the arguments of Opportunity Cost I often hear to let someone else do the hard work. Let someone else mine. Let someone else haul. Let someone else build. The question I ask is when do we run out of someone else? Or, is the concept that we never will run out of someone else because someone will always choose the sub-optional road.  This led me to do a little bit of research into the concept that I so often see people use.

Upon reading a few basic definitions of Opportunity Cost I started to see why it works so well with Eve in a technical manner. As I said above, Eve is about decision making to do something else. In its base form, Eve functions very well under the Opportunity Cost model and I can see why so many people employ it to make decisions in a game where it is easy to wander off into random paths. It helps a player focus their decision makings.

The archenemy of Opportunity Cost in a video game is 'playing for fun'. A quick search on that led me to see how much people hate that term. Fun is to unfocused a word and a concept. It is almost an excuse. "I play for fun" is something that everyone understands but it has no defines because it is a personal concept. Using it will only cause flames to burst from some peoples eyes and char their poor, poor screens.

Instead, I will use "Pleasure".
Pleasure describes the broad class of mental states that humans and other animals experience as positive, enjoyable, or worth seeking. It includes more specific mental states such as happiness, entertainment, enjoyment, ecstasy, and euphoria. In psychology, the pleasure principle describes pleasure as a positive feedback mechanism, motivating the organism to recreate in the future the situation which it has just found pleasurable.
"I enjoy mining."
"I enjoy PvP"
"I like to build stuff"
"I like to hang out with my corporation, drinking beer and chatting"

People play for fun but fun is too amorphous of a term. Some people play for the pure pleasure of playing. Their feedback feels good to them when they refine the ore that they mind. They are not defining success and the worth of the activity by hard numbers or any number but by their emotional fulfillment from their actions.

Per Wikipedia's definition of Opportunity Cost, emotional cost is valid. The question is what does the audience value more. If one values their emotional cost and the other their monetary they will clash. Some people will always define themselves emotionally. They are the people that those that work under the concepts of Opportunity Cost, in Eve, will use to move their game play forward. It creates a symbiosis  If people did not find pleasure in doing less optimal things there would either be no base for the optimization to happen on or the base activities would have the highest optimization until they no longer did due to people seeking new opportunities. For those motivated to always move past others in their seeking, the people who are not motivated in this way due to their motivations being focused on other areas, give them something to work past and for their decisions, improve upon.

Thus, economy.
An economy consists of the economic system of a certain country or region, which comprises the production, distribution or trade, and consumption of goods and services in that country or area. From an investment perspective, an economy depends on, and is limited by, available capital and resources, including land and labor.
In seeking success the path to success is to seek the best path. Success can be defined by the person but no matter what that path is there is an optimal one (or set) that can be used. If the person does not care about the best path the lack of care does not remove the fact that there is an optimal path.

At least, that is how I'm working through some of this stuff.

It leads to my second major question.

If a task in Eve is all that I have to do why is doing the task less optimal then paying someone else to do the task. I use Eve in this because Eve is what I am speaking of.

The situation is hauling.  Hauling is a very time consuming activity in Eve. It ties up an account for a set period of time. There is a point where the items cannot be hauled faster due to the mechanics of the game. Hauling has a hard set cost of time that the hauler will eventually plateau at. The hauler may thus attempt to maximize the use of time through payment and cargo to reach their optimum Opportunity Cost to haul.

Some will just avoid the hauling and allow someone to pick what they might see as a sub-optimal activity selection. My question is where does that selection start and where does it end? If I have an account that would not be logged on doing an activity and I use that account instead to do an activity that I would pay someone else for at no detriment to my other activities, why is my doing the activity sub-optimal?

Using my Wikipedia based education I came across Implicit Cost. This is not the answer to why I should not use empty time to be productive but why I am not more productive with it. Why am I not trying to find items to fill my freighter when I make the runs myself? The answer is because I don't want to and don't care since I don't function under Opportunity Costs in every facet of my day. But, when seeking why I am wrong I found instead that I could simply be doing it better instead.

That makes a rather interesting argument that I will make sure to use the next time someone suggest I don't haul my own goods and see how that goes.


The waters are so deadly because I know very little about them and others know more. I seek education in these things and I will dive in and hope for the best.

Comments

  1. That second paragraph is great! Would You mind me borrowing it from time to time to describe the industrial side of EVE?
    (though I think you might have thought of "princess of high vale")

    ReplyDelete
    Replies
    1. I seem to have written that wrong all over the place. The paragraph should be a bit cleaner now.

      Use it to your pleasure. :)

      Delete
    2. Agreed. That paragraph is a thing of beauty!

      Well done!

      Delete
  2. The power of specialization:
    If I specialize on one activity I can do this one activity more efficient (since I put more effort into optimzation) than I could if I focus on two.

    This obviously also applies to the hauler:

    He accumulates a large set of hauling contracts to pick the from (via his hauling corporation).
    This allows him to move more goods (almost no half-empty return trips at all and less empty freight space by serving additional small contracts en-route) compared to the casual hauler.
    The professional hauler will move more goods per jump in average (did I mention "less half-empty return trips"?) than a casual hauler.

    While I believe you that it possible for a casual hauler to make good use of the time hauling, I doubt that the casual hauler will have the freight space utilization rate a professional hauler will have and thus needs more of the resource "time" per square meter.

    By paying a specialized hauler one can profit from his lower opportunity costs while doing what oneself does better than the hauler does.

    ReplyDelete
    Replies
    1. That still leaves open my other question. That 'self' of mine, in this case my market/building/trade alt would be logged off and idle if she was not hauling my items for me.

      I infer that hauling my own items is a better use of the time than not using that account at all. Using the account does not decrease my use of other accounts or stop other activities.

      Delete
    2. It is about optimizing different resources:

      1. The time (the time you are able and willing to commit to this part of the game)
      2. The money of the store.

      Currently, from your description it appears to me that money is shorter than time.

      As long as operating the store itself does not require to much of the time you are willing to spend (not that many orders to manage due to money issues - or lack of trade alt skills) and you have no other more efficient use for this time, there is nothing wrong spending the remaining time hauling your stuff (no matter what others say).

      There might come a point time, when your trader alts have the skills and the store has the money, where managing the store might consume more than now of the time you are willing (or able) to spend.

      At that point in time your time will become the resource that needs to be optimized and store money does not matter as much. Then pay-to-haul will be the better choice.

      Delete
    3. I am sorry, I ignored your reasoning regarding your hauler account.

      You are right, your hauler account is of course also a resource and not making use of it is also (somewhat) waste of a resource.

      But utilizing this resource requires player time so you need to consider which is worth more.

      As long as you do have the time to use this account for hauling and no other (more profitable) uses of your time (since the store does not have the money to expand his operation until your time is consumed - assuming managing the store is the most profitable time consuming activity) that sounds ok to me.

      I remember Greedy Goblin blogging about hauling his stuff. Back then it was when he had the time but not the money to pay a hauler, I assume.

      Delete
    4. That has been, to a certain point, my logic. Hauling is a semi-afk activity when full and a full afk activity when empty due to the cost analysis of the possible ganker.

      The other interesting side effect is that hauling my stuff has, multiple times, created content due to people wanting to gank my hauler on the jump into low sec.

      Delete
  3. Sounds like you got a great Econ 101 education. Closely related to Opportunity Cost is the Production Possibility Frontier (one example of which is the famed Guns vs Butter model):

    http://en.wikipedia.org/wiki/Production_possibility_frontier

    I've been thinking a lot about this in terms of the front-line "someone else" producers, particularly folks like Mabrick who recently expounded that he expects CCP to step in and make people stop ganking. The problem is that the EVE economy has only Guns ... there is no Butter (or little enough as not to matter). The economy has one and only one real driver: Destruction of existing assets.

    Kudos for getting your feet wet. Economics is fun.

    ReplyDelete
  4. So you have a dedicated hauler account that doesn't cost you extra time (you can play with your main while hauling). You think it's free.

    However even that have opportunity cost: the best of the other activities you could do with the same account while AFK. For example mining ice. That's totally AFK. If an hour worth of ice mining nets you more ISK than another guy would haul, you are losing money if you haul yourself instead of mining ice.

    There is no way to escape opportunity cost. You shall only haul yourself if it's the most profitable thing with your time. However if hauling is the most profitable, you should stop doing other things and focus on hauling!

    Alternatively give economics a finger and play for fun.

    PS: if you like hauling so much, why don't you offer a Bosena-Rens hauling service for everyone?

    ReplyDelete
    Replies
    1. The other activities you could be doing on that account logic only applies if you were willing/had the means to pursue the alternatives.

      Delete
    2. So, suddenly AFK ice mining is ok as long as it provides Opportunity Profit? I relish the irony.

      And I'm not sure if Sugar 'likes' hauling - though I can understand the satisfaction it can provide if the cargo is your own.

      Delete
    3. PS: if you like hauling so much, why don't you offer a Bosena-Rens hauling service for everyone?

      Because I don't like it that much to herd cats. Most people don't have very much in the way of needs for a service like that. They need stuff but now I just toss it into my Jita runs. However, some have converted over to the relaxation of having a market and are not interested in direct buys.

      Delete
  5. So you've got opportunity cost down, now to understand where all the "somebody else"s come from you just need to get basic supply and demand. The short version is that for nearly any commodity there is a price at which each person will buy and another at which they will sell. For example I would not mine ice at todays prices, but were they to be higher I might consider it. As the price of an item increases, the number of people willing to sell it goes up and the number willing to buy goes down. At some price we reach a nice state where as many people want to sell the item as want to buy it.

    To use hauling as an example: At the price of 500,000 isk per jump, the members of Red Frog Freight are willing to sell hauling services. Many of those would not haul an identical route for less except to keep from flying empty ,and some not even then. At that price many players are willing to buy hauling services. When RFF raises their rates, fewer people want to buy hauling from them and more want to haul for them.

    At some point this breaks down if we don't consider the happiness derived from activities, but you've got that bit down already.

    ReplyDelete
    Replies
    1. That would mean that personal choice/taste/opinion/interest is heavily factored in. People beat others over the head with economics and 'that is stupid to do' but someone has to do it and if everyone discovers that it is stupid and no one does it it, from the perspective of economics stuff it gains value and becomes something worth doing.

      I'm trying to wade through personal scorn based opinion vs actual useful relevant fact in situations like those.

      There is a lot of label of 'that is dumb don't do it do this instead it is better'. I often do not want to do what is better because I will not enjoy it even if the hard numbers say it is better.

      This created my puddle of confusion that I'm trying to sort out in relation to actual, useful fact vs 'more better' opinion.

      Delete
  6. I really enjoyed your analysis of fun and pleasure, and I think some people could learn a thing or two. I'm rather surprised Gevlon didn't roast you over that one!

    As to one of your main questions, is hauling a waste of your time, or a huge opportunity cost, I find the answer to that rather tricky. The best I can come up with is that by choosing to train hauling, you made the choice a long time ago. It may have been more profitable, at some past point, to choose a different training scheme that would have led to more income. But it is very hard, in my mind, to quantify the myriad of choices you could have made. At this point, that account is trained to haul, so you should use it to haul. In this reality, you are getting a high level of benefit. Other realities would have different outcomes.

    I haul small things in fast ships. I pay others to haul massive things, or simply wait for buy orders to fill them. Each has a time and money cost, and I base a lot of that on my current account abilities, the chance of ganks and loss, and the intangible "can't be arsed" factor of buying and operating a jump freighter. I have a feeling in a few months or a year, I will ahve a JF, and will be operating under a different mindset. But for now, I enjoy my incremental profit increase, and am taking the opportunity to try and not expand faster than my chosen market can bear. I've already found many "profitable" options are actually very low turnover, so I consider that learning cost as part of the whole equation.

    Good luck, and I have greatly enjoyed your posts on this topic!

    ReplyDelete
  7. The fun factor is the most relevant, in my opinion, due to one hugely important fact: Unlike real life, this is a game and therefore having fun while playing is the prime goal. There's no sense in trying to eke out every last shred of efficiency (or even a no-loss state of efficiency) if it turns EvE into a job.

    For example, I do PI with some friends to make money to plex. We're not doing it as efficiently as possible and we're losing out on opportunities to maximize profits because we aren't as efficient as we could be. In order to get more efficient, though, we'd have to put a lot more effort into the management process, and we don't want to do that. The goal of our project is to 1) allow people to make enough isk to plex while 2) keeping the effort required at a minimum so it doesn't feel like a job. We'll never break into the ranks of even moderate industrialists, but that's not our goal, so for us, the project is achieving all the goals we've set for it. The cost of gaining greater efficiency simply isn't worth it, by our calculations. Serious industrialists would disagree, but they also have different success benchmarks.

    You've already answered your own question, though, Sugar. Since your hailing alt can't do anything well other than hauling, and since if that alt isn't hauling, then it's idle, not using it to haul is worse than using it. As long as the hauling doesn't seriously impact your ability to function simultaneously on your main, keep on keeping on.

    There may come a time when you might need to re-evaluate hauling yourself or contracting out - if, for example, the amount of goods needing to be moved reaches the point where the attention you spend on hauling begins to impact the attention you can devote to your main - but until then, if hauling your own stuff is fun/is something you want to do/gives you value-added enjoyment of the game, go for it.

    ReplyDelete
  8. If I have an account that would not be logged on doing an activity and I use that account instead to do an activity that I would pay someone else for at no detriment to my other activities, why is my doing the activity sub-optimal?

    Don't forget that an account has a cost to you -- 1 PLEX per month. (Or real-world money.) Perhaps you do one freighter run, 20 jumps, from A to B every night with this account. You could pay Red Frog 10m for this, a total of 300m per month. Or you can pay one PLEX to have your account, and do it "for free". But since PLEX cost 500m, you are actually losing money keeping this account active. 500m > 300m.

    Now, if you have this account active anyway (for whatever reason), then the 500m is a sunk cost and yeah, you should be running freight with it, assuming there is nothing more lucrative you could do. (Sunk costs are another great economics concept worth thinking about for EVE players.

    ReplyDelete

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