Newsmaker: Economist explains move to virtual world

The publisher of the teen-oriented virtual world Gaia Online announced Monday that it is bringing on celebrated economist Michael Boskin to lead its new Council of Economic Advisors.

Boskin, a former chairman of the U.S. Council of Economic Advisors under the first President George Bush, and a current senior fellow at the Hoover Institution, seemed an odd choice given the nature of the Gaia economy and Boskin's breadth of experience--he currently advises several sovereign governments and serves on the boards of companies like Exxon Mobil and Oracle.

But like the economies of other virtual worlds, such as Linden Lab's Second Life, Sony Online Entertainment's EverQuest II, Blizzard Entertainment's World of Warcraft, the one in Gaia has many real-world elements. Even if players can't directly convert their in-world gold to U.S. dollars, that doesn't mean they're not making economic decisions when they play. And that is one of the main reasons Boskin decided to take the part-time position.

Boskin sat down for an interview with CNET News.com in advance of the announcement of his new role with Gaia. He shared his thoughts on the health of the virtual world's economy, the level of his involvement and much more.

Q: How did you get involved with Gaia Online?
Boskin: I got involved with Gaia through Craig Sherman, the CEO, and one of the original investors. They came to see me and described what they were doing at Gaia and their desire to make the site richer and more interesting as the site grew and as the economy grew more interesting.

How much background and understanding of these virtual economies did you already have?
Boskin: Some. I was aware of them and I've visited them briefly to look at them and I have friends that are involved with them or investors in them. I know something of their growth and of the people in and around these sites and these businesses and what they're trying to do with them. I find the general space quite interesting. As an economist, I find it very interesting how many people are willing to spend so much of their time at Gaia. People are spending on average over two hours per day on the site and that's a real economic investment.

What was it that attracted you to taking on this role?
Boskin: Well, what really attracted me was how the economy of these sites and in particular of Gaia, evolves. How people are making decisions on it about how to spend their time, how much time to spend, and how to accumulate various (things). There are businesses starting up, there are people with banks, there are people who are lending virtual money and so on.

So, a variety of things of this sort interested me as to how these decisions were being made, what it means, how sensible they were, and how this economy would grow over time. There's real economics inside this. (And) that's very similar to, or analogous to, a lot of what goes on in the real economy in the offline world. We have an opportunity to get real data on what they're doing and understand it and an opportunity to suggest various mechanisms that will encourage the growth while keeping it fun and interesting for them.

As an economist, I find it very interesting how many people are willing to spend so much of their time at Gaia. People are spending on average over two hours per day on the site and that's a real economic investment.

Can you talk about the similarities between the Gaia economy and that of the United States?
Boskin: I think the fundamental similarity is that you have people making decisions on how to allocate their time and use their skills. That is at the core what is similar about them and that has a lot of consequences for Gaia. And there are some things we can learn from what's going on in the real economy that may be useful as we grow Gaia. But this is not designed to replicate a real economy.

Is there a way to estimate the total size of the Gaia economy?
Boskin: We're working on a variety of measures and indicators. Not being able to translate it into dollars or euros is an obstacle to giving us that simple metric, but we'll have a variety of other metrics we'll come up with which will enable us to see how it grows and how things are valued internally. Then we'll work on the more difficult task of getting some overall measure that relates to something outside the virtual world.

What kind of metrics do you think those would be?
Boskin: For example, what's happening in the prices and auctions of similar items. Are they going up? Are they coming down? How much Gaia gold is being accumulated by people in investing their time and energy and talent and skills in gaming and sharing and things of that sort. So, there's kind of a rate of accumulation, which would be similar to the capital formation rate and what the rate of growth is of the money supply. (We're also going to work on) something like a consumer price index inside Gaia. For example, something that enables us to get some metrics to understand what's actually going on, and how to help to have kind of a seamless and frictionless growth of the experience while keeping it fun and not slowing it down with a lot of restrictions.

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THANK GOD this does not included Second Life!

This must be a dream! Nothing about Second life? Looks like companies are staying away from Linden Lab and their badly porrly don`t VR world!