When is a subsidy a good thing?

Ever since the epic world economic meltdown of 2007-2008, the public has been introduced to the consequences of bad government management. Indeed, massive overspending, sometimes coupled with big tax cuts in the 80’s and 90’s, led to unmanageable debts in otherwise rich countries and their subsequent descent into insolvability hell. This unfortunate yet completely predictable consequence of government hubris has led to many countries imposing draconian changes, some countries deciding to increase revenues by raising taxes and some by massively cutting in government spending. While balancing a budget is a very necessary goal, one should be extremely careful about what is being taxed or what programs are being cut.

When is a subsidy a bad thing?

Simply put, using a meal-partaking allegory, there are two kinds of government spending: those that ‘pay the groceries’ and those that ‘enlarge the garden’. While spending to buy food is very important, it doesn’t add to our future capacity to eat. Financing day-to-day government activities with debt is unhealthy, because without proper structural changes in managing public funds, it will only get worse. But if spending goes towards creating greater riches in the future, then our ability to pay back what we borrowed today will be easier and more affordable. That’s investing, not spending. And this is where governments err: they cut (and fund) programs not only (and not often) on a serious analysis of the overall long-term consequences of such actions but on short-term, heavily influenced partisan and ideological, often dogmatic, politics.

Take for example the government of Québec’s subsidy of the video-game industry. The Couillard government has decided it will reduce the financial benefits it now gives to companies that do business in the province. Is it a good thing? Sure it will help to balance the budget for the next few years, but what about the long-term consequences? What about the indirect effects to other parts of the economy?  Does anyone know? Where is the research? Where is the evidence? We have heard in recent weeks that the video-game industry is one of the few parts of the economy at large that has actually thrived in the past 7 years, creating thousands of well-paying jobs, sustaining thousands of others indirectly, creating revenues for the government and giving Québec a massive amount of exposure worldwide with the quantity and quality of the products churning out of all its studios. And it is still growing.

I do think balancing the budget is a necessity, but it needs to be done the right way: with facts, data and research. Not with popularity, polls and trends. It’s time for a change.   

Amazon is a monopoly? Hold on...

So you’re the proud parent of a beautiful, inquisitive 15 year old daughter. How sweet. You learn over the dinner table that she has a boyfriend. Oh no! So you kindly ask the name of said boyfriend, then immediately call the police accusing the unknown young man of raping your daughter. Because that’s the best way to make sure he never, ever rapes her. Right? Right? Yeah, didn’t think so.

So here we have this big business, Amazon, accused of being the nastiest thing to come along in decades. Monopoly! Monopoly! Death to Amazon! Because it’s going to get too big soon and it will destroy the world. Might as well curtail its power now so we won’t have to do it later. Right? Right?

The problem with a business like Amazon(or Netflix, or Google) is that we don’t really know where this IT market is going to end up. We’re in the infancy stage of a massive overhaul of the way we do business: with immaterial goods  constructed mostly of knowledge, maybe the old paradigms of governement intervention isn’t up to par in dealing with this new high tech world. Add to that the slow decline of the technologically-inept and the rise of the mulit-tasking nerd and there’s no way to predict where we’ll end up. Or if Amazon and it’s likeminded business endeavors will be good for the world or not. The only thing we know is we don’t know.

What we need to do is wait for the market to reach maturity, to stabilize at a point where we can study the impact of the new world order. Then we can ask if the governement should intervene. Not before. Because if we act now we may end up doing more harm than good, end up having to fix something that wasn’t broken in the first place. The marketplace is fluid, it will never be too late to change the rules later if we realize the marketplace is at the wrong equilibrium point. Wait and see.

Get to know the kid, and trust that your daughter is wise enough to chose a good boyfriend.

Gaming Metrics: liberty and the pursuit of gameliness.

I was having a discussion with Joe Khoury, a producer at Eidos, about the rigors of his job and the subject of evaluating games came up. He basically told us that everyone wants a 90+ on Metacritic, but the grading was entirely too subjective and a single grade to fit every single game is absolutely inadequate. Add to that the fact that a high score at Metacritic will not necessarily translate into high sales, maybe it’s time the gaming industry set a new barometer for games. In these coming blogs I’ll try and put forth the building blocks of  ‘Gaming Metrics’, a hopefully better standard for evaluating games.

The first of these ‘Gaming Metrics’ I want to talk about is the openness/linear aspect of the game. It’s something dear to my heart, as a big MMORPG fan, and is also something that can make or break a social game.

So how would I go about building a reference sheet for such a metric?

Well my first instinct is to go over in real life and find something similarly used. And we have just the thing: the index of economic freedom from the heritage foundation (http://www.heritage.org/index/). So how does that index work? The index revolves around four main categories of freedom:

1. Rule of Law (property rights, freedom from corruption);
2. Limited Government (fiscal freedom, government spending);
3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and
4. Open Markets (trade freedom, investment freedom, financial freedom).

Source: http://www.heritage.org/index/

Can we do something similar for Games? Let’s try it!

First we need to understand what makes a MMORPG great.  It’s actually pretty simple: what makes a game great is choice. Yup, that’s it. The more choices you have, the better the choices you can make and the more impact your choices have the better the game will be. Choices make the players involved in the game: no one wants to feel like a sock on a clothesline being pushed further over the pool.

So here are the nominees for induction into the Gaming Metric: Economic Freedom (Or GMEF for short)

1.       The character; Levels or Skills?

a.       How many classes? Diversity of roles (holy trinity or not, how many  different build can someone have?)

b.      How many races? Race perks, disadvantages

2.       The crafting: afterthought or important?

a.       How many professions?

b.      Is difficulty linked to levels?

c.       Crafting items quality versus solo play/group play/raid play loot

3.       The world

a.       PVP or PVE?

                                                               i.      Open world PVP? (instanced or not)

                                                             ii.      Open world PVE? (instanced or not)

b.      How many PVP factions?

4.       The quests/story

a.       Kill/gather X or story driven?

                                                               i.      How hard?

b.      How much do they lead you to the next part?

5.       The hardware

a.       How big does your rig have to be?

b.      How many concurrent players can a server have?

c.       Lag?

6.       The money

a.       Microtransactions or subscription based?

b.      Frown on ‘real to game’ transactions?

7.       The content

a.       How much of it

b.      How fast do you get updates?

c.       DLC? Expansions? Future plans?

d.      User generated content?

8.       The rules

a.       Botting or no? Stance on botting?

b.      Stance on cheating?

c.   EULA

9.       Social platform

a.       Guild tools depth?

b.      Handicapping the social aspects?

                                                                i.      Group search tools

                                                              ii.      Guild search tools

                                                            iii.      Raid search tools

                                                             iv.      Auction house

This is just a rough idea. If you have anything you want to add please let me know. I’ll work to add depth in the coming months. It’s a cool project!

Random musings: are easy games spoiling the next generation?

Call me old fashioned, but when I heard that in the younger levels of soccer we no longer keep score so as to not give the players performance anxiety, it made me skeptical. Isn’t a point of playing sports to learn how to win and lose with grace and dignity? To make our kids understand that losing should be used as a motivation to get better and that success isn’t cheap? Not keeping score still to this day feels wrong to me, because I feel it devalues the experience and misses out on an opportunity to teach an important lesson about competitiveness and success.

It’s pretty much the same thing with gaming. I was having a discussion after class with a few students and I was complaining that games were becoming increasingly easy. It’s an old favorite of mine: when the risk versus reward is skewed towards consumerism and easy payoffs, it spoils the player. If you do it often enough over a long enough period of time, I feel it creates bad habits towards effort and the value of perseverance and, ultimately, success.

Last year I was having a discussion with my 12 year old about a game we both played and I asked him if he enjoyed it. His response was eye opening. He said ‘I finished it, so I enjoyed it’.

On what difficulty setting? ‘The easiest’.

So your enjoyment comes not out of playing the game but of the fact you played through it? ‘Indeed it is’.

So if a game is too hard? ‘I play something else’.

What if you enjoy the story, the play style of the hard game? ‘If I can’t finish the game fast, what’s the point?’

What’s the point? Really?

This is what I call the toaster conundrum: you remember those old toaster that our grandmothers used to have? The ones with two doors where you had to manually flip the bread to get both sides roasted?

Those things last forever! They were made from steel and had as little moving parts as possible, to lessen the possibility of it breaking. Unfortunately, since they lasted so damn long, the company didn’t sell as many as they could have if they broke more often. This planned obsolescence is now a given in the industrial world, and now we make 10$ toasters that are cheaper to buy but last just long enough to get us to our next payday. It’s disgustingly wasteful.

And this is where I see the gaming industry going.

New games, lesser content, cheaper to buy. Buy more often. Rinse and repeat. I can’t blame them. I’m an economist, they’re just supplying a product that consumers want. But it may be having an adverse effect on the people who grow up with those games: it’s making poeple lazy, as players and possibly as human being.

I was at a conference last Friday and one of the presenters, HEC Montréal professor Pierre-Majorique Léger, was talking about cognitive flow. This is a fascinating way to view optimal playing value in games depending on difficulty and experience (a cool article on cognitive flow by Sean Baron: http://www.gamasutra.com/view/feature/166972/cognitive_flow_the_psychology_of_.php) 

Here is the graph that had me thinking:

Figure 1: Flow, boredom, and anxiety as they relate to task difficulty and user skill level. Adapted from Csikszentmihalyi, 1990. (Sean Baron http://www.gamasutra.com/view/feature/166972/cognitive_flow_the_psychology_of_.php)

The question I asked Professor Léger was: ‘what if the flow part in the above graph, from generation to generation, was slowly inching into the boredom section?’ What would that do, from a gaming industry point of view and, more importantly, socially speaking? What signals are we sending the next generation about overcoming hurdles and valuing success?

No one has an answer. It’s too big. Fun to think about though!

Actually, I might be wrong about the ease of newer generation games. I don’t think I am, but I could. It could actually be interesting to do research on that subject. Hmmm…Maybe go to Metacritic, and analyze the number of times difficulty-related words (hard, easy, frustrating, pleasure, enjoyment, etc.) are used in critics over different games that came out in various years. See if the difficulty of games is more prevalent in reviews 2014 than it was in the 90’s.

Seven hundred words later and all I am is worried. Worried about my clone army (my kids). Worried that they will choose their games not by the awesomeness and the challenge but by the ability to finish it in as few hours as possible.

My wife keeps talking about how sugar is now the number one epidemic in the world, killing more people than any disease ever has: obesity and heart disease and diabetes and sugar addiction and so on.

What if easy games are the brain’s version of sugar?

Why the video game industry needs more economists.

Video games are becoming more and more complex to develop: between AAA games reaching ever higher stratospheric budgets (Destiny is scheduled to cost 500 million dollars) and the mobile market facing ever stiffer competition, there is an increasing need for formal analysis and the theoretical toolbox economists can provide. The main blockade against economist is simple: most people don’t have a clue what we do. We are usually bundled up with the administrative elements of upper management with nary an extra thought. This needs to change.

I am an economist, and this is my manifesto.

What does an economist do?

Economic theory starts from the most basic premise: what do people want? That answer is actually simple: everything. Unfortunately, there isn’t enough resources to fill that want. This forces people to make choices, and that’s what economists do: we study how people make choices. Any choices, all choices: what to buy, how much to pay, who to hire, what to eat, who to date, the list goes on and on.

So, what can an economist such as I bring to a video game company?

We can bring plenty. Here’s a small sample of what we can do:

1.    We can do cost-benefit analysis.  CBA is a very useful tool used to evaluate whether a project (or an idea, or a decision) is viable or not. It’s a structured and well documented approach that helps make enlightened decisions. One of the better feature of CBA is risk assessment: being able to determine the level of danger taking a certain decision will bring. You want to invest 50 million dollars over two years to outsell Call of Duty? CBA will tell you you’re nuts! Ok that one was easy, granted, but you get the idea.

2.    We can bring the economic simulation of your single-player games to more than a mere afterthought. Almost every game nowadays has a certain market aspect built into it: you get loot, you buy armor and potions and houses and stuff. The problem with 99% of those games is that there is no value in the choices you are asked to make because there is always almost infinite amounts of money. Think about it: most games would rather limit you in the items you can carry than in asking you to pick the items you want to buy carefully. Some people will argue that people do not want to bother with being broke in-game, they suffer through it enough in the real world. I disagree. I think the payoff to make the right choices given limited resources is what makes a great game. Which brings me to my third point…

3.    We can greatly increase the payoff to players in multi-player games. When you think about MMOs for example, not only do you see yourself killing a mighty dragon with 19 of your best online friends, you also see the added benefit of selling your unwanted items to help you purchase those weapons you need to kill that dragon’s dad! Or brother. Or mother. Whatever. Playing the online version of ‘Pimp my character’ is nowadays a national hobby, and an economist could make that part of the game more interesting and rewarding.

4.    Not only can we make trading better, we can also make crafting better. Let’s see: acquiring scarce resources, creating items and supplying what players need, nay demand, all this to make a profit... Sounds pretty economish to me! We can help make crafting a more rewarding experience.

5.    We can help teams working on game understand the advantages and shortcomings of the different ways a game can make money: free-to-play, micro-transaction and subscription-based are the most used business plans to turn a profit.

6.    We can teach the basics of game theory to decision-makers and decision-takers so that everyone talks the same language. Imagine, when the time comes to take a decision between people with different backgrounds, what it would mean if everyone had the same operational language. No more having to explain every concept before using it. Even better, having a simple language so that everyone can understand what you want and how you want it: an end to people trying to do something and failing because they didn’t understand the command. Game theory states that every social interaction or decision can be viewed with the exact same tools as every game known to men: players, strategies (according to the rules) and payments (consequences to playing the game a certain way). Everyone does this at an unconscious level, an economist takes those intuitions and draws them on a board so everyone can see and input their expertise to get a better picture. It’s magical!

7.    We have a toolbox full of concepts and theories that can help make video game making easier, faster, more transparent and more fun! Network externalities, monopolies, standards, cooperation, information asymmetry, DRM management and piracy impacts, efficiency evaluations and a whole plethora of other bits of information that can add value to your game company.

8.    And there is so much more! Controlling inflation (for example finding what we call money sinks to remove excessive coinage made by looting and questing), anticipating and using devaluation of older items post-patch, providing insurance for expensive items, assuring the game is balanced when it comes to rarity of items, the optimal level of surveillance end penalties for in-game crime, managing and sustaining user-generated content, the list is endless.

Economic theory is here to stay, and economists are the specialists of that toolbox that can make your business an even bigger success.

So don’t wait, hire an economist. We’re the cowbells of the gaming industry.

P.S.: well not just any economist. Get the one that really understands it.

P.P.S.: I meant me. Take me.

Simon Cadorette