What is a Synthetic Economy?

In gaming and persistent virtual worlds that employ their own form of currency, participants purchase virtual currency with real-world dollars. This generates a synthetic economy within the virtual world.

In gaming, users might purchase weapons, secrets, characters, or tools. Other virtual worlds are not created for gaming, but to simulate real life communities. In these virtual worlds, participants might buy clothes, land, or businesses. Considering that many online games and virtual communities have hundreds of thousands of users interacting, buying, and selling, the basic model leads to a synthetic economy within each virtual world with some aspects that reflect real-world economies.

Some experts fear that users may sink too much real-world money into a synthetic economy, forgetting that the purchase has no tangible counterpart. Business Week magazine featured one real-estate mogul in Second Life, a virtual world community, who was making several hundred thousand real-world dollars a year selling virtual land. While this is certainly the exception, it illustrates how many people are willing to sink hard-earned real-world cash into a synthetic economy.

To people who have never experienced a virtual world, this concept would most certainly sound bizarre. Why trade real dollars for “fake dollars?” The answer is simple: virtual worlds are compelling, strangely addictive places. Once interested in a virtual world, the user begins identifying with his or her avatar and the world itself. Just like in the real world, the user wants to excel in the virtual world, to distinguish or indulge oneself, and this eventually leads to buying things that feed the synthetic economy.

Wikipedia notes that in December 2004, an island on Project Entropia sold for virtual dollars equaling 26,500 real-world US dollars (USD), while a virtual space station destined to be a nightclub sold for an amount equaling 100,000 USD. A synthetic economy offers unlimited opportunity for an entirely new way to generate real-world dollars. However, anything purchased in a synthetic economy is subject to loss without recompense. Real-world laws have not caught up with the unique circumstances generated by virtual worlds, leaving virtual worlds the “Wild Wests” of the computer age. For most, however, the plunge into virtual worlds is a social getaway, and the investment in the synthetic economy is probably modest enough to be a guilty pleasure – for many, a guilty pleasure worth every penny.