Now that the new edition of Hidden Order is out, I'm thinking about doing another nonfiction book. One intriguing possibility is a book using World of Warcraft to teach economics. For example ...Consider the economics of the auction market. To first approximation—perfect competition, zero transaction costs—the price of crafted goods equals their production cost. If we ignore the player's time, that's the cost of the materials to make them.That breaks down for a variety of reasons, all economic. Crafting and selling takes time, time when some players would rather be doing something else — although that doesn't matter if there are enough who enjoy the auction house game. The market for many crafted items has only a small number of sellers at one time, giving imperfect competition and the possibility of cartels. To craft an item you need the pattern, bought from a trainer or other NPC or on the auction house, possibly at a high price. To learn the pattern, you need sufficient skill. It looks like a product with a fixed cost and a constant marginal cost — except that materials may get more expensive if you want to buy more of them, which gives an upward sloping supply curve.On the other hand ... making things can give you skill. One would expect, and sometimes observes, products that consistently sell for less than their materials cost, the difference being the price players are willing to pay in order to skill up. For many, indeed most, goods the market is thin. One result is price changes over time, most obviously between low population and high population hours and days. Some of them are predictable, but to make money by arbitrage you need a predictable price difference that more than makes up for the 5% auction house cut.As all of this suggests, the auction house itself, the most obviously economic part of the game, could be used to teach a lot of fairly sophisticated economics. But there is much more.Consider the matter of forming two player teams to do quests or kill things for loot and experience. The optimal team is probably a paladin and a mage. Why? The mage is the highest dps class, the paladin is both a good healer and a tolerable tank, so the team benefits from division of labor. A druid is also both a healer and a tank but also a tolerably good dps, so a druid has less need of a mage companion than a paladin does and will be willing to offer less favorable terms. That gets us to an important insight of comparative advantage: You want to trade with people who are not only good at what you are bad at but bad at what you are good at.For an entirely different insight ... Of the first three fire elementals you kill, farming them to make the money to buy your mount, two drop (very valuable) elemental fire. The next ten drop nothing. Obviously Blizzard's random number generator is broken, perhaps deliberately.It probably isn't. Humans are equipped with very good pattern recognition software, good enough to find patterns that are not there. Which raises the question of whether the business cycle is really a cycle or a random walk made to appear cyclic by the same mechanism.There are a few of the examples that have occurred to me. The purpose of this post is to invite readers who have played WoW to offer more.Note: My examples are based on Classic WoW, since that is what I now play, having given up on the standard version of the game some time back.
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