The Economics of Augmented and Virtual Reality

Joshua Gans and Abhishek Nagaraj

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Abstract: This paper explores the economics of Augmented Reality (AR) and Virtual Reality (VR) technologies within decision-making contexts. Two metrics are proposed: Context Entropy, the informational complexity of an environment, and Context Immersivity, the value from full immersion. The analysis suggests that AR technologies assist in understanding complex contexts, while VR technologies provide access to distant, risky, or expensive environments. The paper provides a framework for assessing the value of AR and VR applications in various business sectors by evaluating the pre-existing context entropy and context immersivity. The goal is to identify areas where immersive technologies can significantly impact and distinguish those that may be overhyped.

Date: 2023-05
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