Results of a massive experiment on virtual currency endowments and money demand

Nenad Živić, Igor Andjelković, Tolga Özden, Milovan Dekić and Edward Castronova

PLOS ONE, 2017, vol. 12, issue 10, 1-14

Abstract: We use a 575,000-subject, 28-day experiment to investigate monetary policy in a virtual setting. The experiment tests the effect of virtual currency endowments on player retention and virtual currency demand. An increase in endowments of a virtual currency should lower the demand for the currency in the short run. However, in the long run, we would expect money demand to rise in response to inflation in the virtual world. We test for this behavior in a virtual field experiment in the football management game Top11. 575,000 players were selected at random and allocated to different “shards” or versions of the world. The shards differed only in terms of the initial money endowment offered to new players. Money demand was observed for 28 days as players used real money to purchase additional virtual currency. The results indicate that player money purchases were significantly higher in the shards where higher endowments were given. This suggests that a positive change in the money supply in a virtual context leads to inflation and increased money demand, and does so much more quickly than in real-world economies. Differences between virtual and real currency behavior will become more interesting as virtual currency becomes a bigger part of the real economy.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0186407

DOI: 10.1371/journal.pone.0186407

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