Is Video-Game-Based Game Theory Applicable to the Physical World?

Virtual economies present in games such as World of Warcraft have the potential to be used as a testing ground for economic theory in the physical world. Under the assumption that players value currency in the game consistently, acting rationally in player-to-player exchanges, we can potentially develop economic models explaining trends in the physical world using a virtual space that is easily manipulated. One application area in particular to economics is testing different assumptions of auction theory using data gathered from World of Warcraft’s game auction house. However, before being able to apply any results observed in virtual worlds to the physical world, it is essential to determine whether or not the results of models based on virtual worlds have any actual relevance to the physical world. While human beings control the characters and are responsible for the actions within World of Warcraft, there are significant differences between the game world and the physical world (for instance, players have unlimited lives, making the cost of dying negligible) and models that work within the video game may not be applicable in real life. This paper will attempt to determine if auction theory based on transactions in World of Warcraft’s auction house could be appropriate for explaining auction-based transactions in the physical world