Alright, last time we had a talk about what is value in an item, how it influences our behavior and our choices and what factors dictate the value we attribute to an item. Today, I would like to wrap up this « chapter » on value with a couple of extra notions that, even if they are more circumstantial and external, are nonetheless extremely important when it comes to determining the value of something.

Urgent trumps important

We have all heard the story of a bottle of water being priced 0,50€ from the supermarket but being 5€ on an airplane. That’s because when you are on an airplane, your need for the water is urgent and there is nowhere else to drink from (no the water coming out of the taps from the toilets is not drinkable).

“Urgent trumps important” means that what you need/want immediately (even if it’s bad for you in the long term) will always appear as higher value than something that is important (even if it is something that will be greatly beneficial later).

Of course, it is only a matter of perception but we need to remember that people are very bad at delaying rewards and will, more often than not, prefer the instant gratification. Heroin is popular for a reason after all and it’s not its taste.

For us that means that the player will definitely be ready to pay more according to the circumstances they are in. In a player-led economy, that means that we will see the prices of certain things skyrocket in certain settings, up to us to see if we want to create the conditions for it or not (like releasing a new update that requires a specific resource or something).

For example, we could imagine a scenario where a zone in the game is covered in trees that produce low level wood. Nobody really need wood past the first couple of levels so the price of wood is dirt cheap. It’s abundant, it’s not very useful, nobody really wants it so the price is low. Now let’s imagine that a new patch of the game introduce « Super Wood » that is the resource needed to create the best items in the game and that, to obtain Super Wood, you need to refine 100 logs of normal wood. Instantly, the value of Super Wood (and, by extension, the value of normal wood) gets real high. We can even imagine that the trees you get wood from are super slow to regrow. Then people will rush onto whatever wood they can find, probably cut down all the forests of the game and stockpile on wood to create Super Wood even if that bears bad consequences for the future in game. Urgent Trumps Important.

Objective Value & Perceived Value

It’s a well known marketing fact that people do not buy a product, they buy a story. Namely the story that the user creates in their own head about the item.

What that concretely means is that people don’t really care about the qualities of the item you are trying to sell them. What they care about is what they perceive of it, how it makes them feel, what’s the narrative behind it. You can sell horseshit to people if you make them believe it will solve whatever problem they have.

It’s a bit more difficult to illustrate in a game economy but, for example, using shiny colors, fancy looking shapes and an intriguing description can raise the value of something otherwise utterly useless.

It might even be a good idea to purposefully create « useless » items that people will meme with. Internet culture is a fickle and temperamental thing that is hard to artificially attract but if there is one thing players love to do is taking the piss at each other. I remember the glorious days of Team Fortress 2 (I know I am old) when it was fashionable to hit people with a brick of milk. Didn’t do any damage, it was all for the memes and the love of spraying another human with white fluids.
Given the trend, it would have been possible to see the value of the milk brick go up regularly.

Scarcity

I read somewhere that the value of an item can be calculated with this formula:

$Value= Utility * Scarcity²$

The value of any object can be multiplied if there are not many of them.

For us, that indicates 2 things:

• We need to make sure that there is no consortium or agreement between players to gouge the prices of an item they produce.
• We can create situations that will influence the price of items (like a drought that decreases the production of wood or a flood that increases the production of mud)

Real Life Example : De Beers Diamonds

I will not discuss here the political, moral and social ramifications of the extraction of diamonds in Africa. If you want to lose sleep over something, up to you to go investigate that on your own.
However, what De Beers did is a genius move in marketing and value control. So let’s start at the beginning. What is a diamond and what is it used for? Diamond is basically a very tough rock. It’s not exactly rare without being something you come across regularly and it has very limited uses. You can use it in tools to make them cut other tough things. That makes it a potentially very good currency and a vanity item.

The problem is that every country in the world already has a currency and that the amount of people that have a need for a vanity item is ridiculously low and they most likely already have 10 of them each. That’s an issue because that means that nobody needs diamonds and if nobody needs diamonds, nobody buys diamonds.

We are in the late 40’s and in comes the marketing department. The 5 guys of the marketing department look at each other (you can picture a scene from Mad Men if you will) and discuss about how to sell things. They look at a few statistics and figure out that women are at the center of most expenses. Either they make them or their husband purchase things for them (it was the late 40’s don’t blame me, blame them). They realize then that the way to go is to target women.

Then comes the question of how to make women buy diamonds or, at the very least, how to get husbands to buy diamonds for their wives. They have no practical use for it so they need to go for emotional needs. What is an emotional need that all women can understand and relate to? Love and receiving the proof that their husbands love them.

And, just like that, they created the whole « A Diamond is forever » campaign where they tell women that receiving a diamond is a proof of eternal and undying love from their husband. Guess what? That works. Every wife in the world asks their husband to buy them a diamond to show them love. Every guy in the world starts preemptively buying diamond jewelry as a romantic gesture for their wife/fiancée.

Instantly the need for diamond increased, the demand exploded and De Beers was free to raise the prices. And they did. By raising the price of diamond items, they transformed diamonds into a status item. Diamonds were for the elite and having a diamond (especially a sizable one) was a sign that you were part of this elite.

Don’t get me wrong, De Beers was already rich before that campaign but that move got them to a whole different level.

Now that you have a product that is needed and that has a high value, what is the next step to make sure that your empire lives on for 1000 years? You control the supply chain. De Beers bought most of if not all of the diamond mines around the globe. Mines that every day produce diamonds of all sizes and quality.
De Beers decided to throttle the supply by controlling how many diamonds are released every day. They now control the scarcity of diamonds.

By following that very brief explanation of the De Beers strategy, we can easily see that the value of something is highly circumstantial. And that your marketing of an item is really what defines its value.

By the way, special salute to the De Beers marketing team who managed to find a way to sell lower grade diamonds at a higher price than regular diamond. What am I talking about? Well maybe you know it but the quality of a diamond is determined by its purity. The purer a diamond, the better it is. A pure diamond is « white » or rather transparent. However, when you mine, you don’t really choose how pure the diamonds are and they tend to have impurities. Depending on the impurities, you get different colors. For example, if there are traces of iron in your diamond, it will have a pinkish-red tint to it. Now some diamonds come out brown. Not the prettiest. Not the same symbol of undying pure love.
Well in comes the marketing team. They already established that their target market is women through their husband/boyfriend. Now what is brown and most girls love?… And that’s how they came up with the appellation « Chocolate Diamonds » and sold them for almost double the price as normal diamonds.

Market’s invisible hands

I have NOT gone insane, the “Market’s invisible hands” exist and, yes, they are in this room with us. Leave me alone.

The principle of the invisible hands is a rather intuitive one to understand. It is, put simply, that according to the situation, a mass of people will determine the average and “best” price of an item. This is particularly important for any player-led economy.

Basically the best price for an item is the highest one that the buyer agrees to pay and the lowest one that the seller accepts to receive.

If we have 10000 people that are part of an economy, items will always find an audience. At the launch of an item on the market, the price will range widely between sellers who grossly overestimate the value of their goods and the buyers who grossly undervalue what they want to buy. With time, we will observe that buyers and sellers will eventually come together to find a price that is acceptable for both. However, if the supply or the conditions change, the price will automatically adjust by the fact that now both sellers and buyers will have to take into account these new parameters.

If there is a drought that reduces the production of wood, the wood producer needs to work twice as much to get 1 log, that means that the log, to remain interesting for the wood producer to sell, will come twice as expensive. As the buyer, if I critically need a log right now to finish my new building, I will accept to pay a premium for it. Now multiply this reasoning by the entirety of the economy and you get the Market’s invisible hands that influence the price of all items.

This concludes our talk about the value of things and how to price an item. I am sorry if it was a lot of information to digest but that is quite possibly the most important part of economy design.