September 17, 2007 6:00 AM PDT

Big-shot economist to advise teen virtual world 'Gaia Online'

What might you expect to be the next career move for a man whose resume includes stints as a U.S. Council of Economic Advisors chairman, a Hoover Institution senior fellow and a Stanford University economics professor?

Try chief economist for a teen-oriented virtual world.

Gaia Interactive announced Monday morning that Michael Boskin, still a Hoover senior fellow and Stanford professor, will become chairman of the Council of Economic Advisors for Gaia Online, a virtual world that attracts 2.5 million monthly participants who engage in more than 100,000 daily transactions.

In its announcement of the new council and Boskin's leading role, Gaia Interactive said the new organization would be tasked with providing "ongoing analysis and guidance" of the virtual economy.

Boskin said he would remain in his Hoover and Stanford positions.

Gaia Online images

In recent years, the economies of virtual worlds have become increasingly complex and varied and have attracted significant amounts of popular and media attention. Economies like those of Second Life regularly see more than $1 million day in user-to-user transactions. Anshe Chung, who became a millionaire by developing and selling real estate in Second Life, was even featured on the cover of Business Week.

Despite the growing importance of these economies, it surprises some to see a heavy-hitter like Boskin taking on such an important advisory role for a virtual world catering to teens. After all, this is a man who, in addition to his academic positions, serves on the boards of companies like Exxon Mobil, Oracle and Vodafone. According to his Hoover Institution biography, he also serves "as an adviser to presidents and prime ministers, finance ministries, and central banks around the world, from the United States to China."

Gaia Online, said Boskin, is just another economic environment--populated by real people doing real things--worthy of study.

"I find it very interesting how many people are willing to spend time" in the virtual world, Boskin told CNET News.com, adding that he was attracted to his new role by "how the economy of these sites, and in particular of Gaia, have evolved; how people are making decisions on how to spend their time, (and) how much time to spend."

Essentially, Boskin said, an economy is an economy, regardless of whether the participants are teens in a virtual world or captains of industry in the physical world.

"The fundamental similarity is people making decisions about how to allocate their time and use their skills," Boskin said. "That is at the core of what is similar about them. There's some things we can learn about what (is going on) in the real economy by what is going on in Gaia.

"What a lot of companies haven't figured out yet is why they're bringing in economists. Is it to increase profits, or to come up with a fair way to distribute goods?"
--Bruce Boston, former economist for There

For now, Gaia Interactive is expecting the virtual world's Council of Economic Advisors to have three members, one of which will be Boskin. Another will be Stanford economics doctoral student Saar Golde, who will be tasked with studying the Gaia economy. In all likelihood, Golde will be the one doing the heavy lifting, as Boskin said, "I will be giving overall advice and guidance and will be available for inquiries."

Gaia Interactive has not said who will be the third member of the council, though it is looking for candidates from academia, government or industry and with experience with monetary policy.

To be sure, Gaia Interactive is hardly the only company that has engaged someone to look after its virtual world. Second Life publisher Linden Lab recently brought on someone for that role, and companies like Sony Online Entertainment and Makena Technologies (publisher of 3D virtual world There) have also had people specifically responsible for virtual world economies.

"One of the core questions you have to answer is why are you using economics in the first place," said Bruce Boston, the former economist for There.

"What a lot of companies haven't figured out yet is why they're bringing in economists. Is it to increase profits or to come up with a fair way to distribute goods?"

Or, it might be for publicity, Boston added.

In the case of Gaia Online, which Boston is not particularly familiar with, it doesn't matter what the motive is in a virtual world where currency is not directly convertible to the U.S. dollar (as is that of Second Life--but not most virtual environments). It's really about time and energy spent, according to Boston.

"There is no difference between the exchange of something for money and the exchange of something for value," he said. "Money is nothing more than one of the many commodities that exist in life. You can have that commodity so that it can be traded across the real life (and) virtual life border, or not."

In many virtual worlds, one of the major concerns for those governing the economies is how to keep them stable. Frequently, they suffer from inflation or deflation, causing prices to skyrocket or drop.

To Boston, the real issue is not the occurrence of inflation or deflation, but whether players can plan ahead for such events.

"Changes in currency tend to confuse people," Boston said, "and that confusion makes it very difficult to make accurate assumptions on the results of their actions. If you have steady inflation or hyperinflation, and people can make decisions in that state, you're OK."

The Gaia Online Council of Economic Advisors has not yet determined what its policies will be for managing the economy, said Boskin. So players should keep a close eye on how the economic council handles fluctuations in the game's economic health.

To date, Boskin said, the Gaia Online economy has been healthy. There are signs to corroborate that, such as the daily listing of more than 5,000 items for sale, the 100,000-plus transactions a day, and the virtual environment's millions of users. But Boskin and his fellow council members will be judged on how they deal what might happen down the road.

In the meantime, the council will be focused on conventional economic analysis, such as looking at what happens to the prices in auctions for similar items, said Boskin.

"Are they going up or down? How much Gaia gold is being accumulated by people investing their time and energy and talent and skills," Boskin said.

Ultimately, though, Boskin' job is to ensure that Gaia players keep on having a good time.

"I'll be providing analysis and guidance to the (Gaia) management team, and some of the creative people," Boskin said. "The idea is to anticipate things that may come up that could enrich and improve the site."

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Michael Boskin, virtual worlds, economist, economy, council

 

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