Exodus to the Virtual World: How Online Fun Is Changing Reality

Exodus to the Virtual World: How Online Fun Is Changing Reality

by Edward Castronova

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Virtual worlds have exploded out of online game culture and now capture the attention of millions of ordinary people: husbands, wives, fathers, mothers, workers, retirees. Devoting dozens of hours each week to massively multiplayer virtual reality environments (like World of Warcraft and Second Life), these millions are the start of an exodus into the

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Virtual worlds have exploded out of online game culture and now capture the attention of millions of ordinary people: husbands, wives, fathers, mothers, workers, retirees. Devoting dozens of hours each week to massively multiplayer virtual reality environments (like World of Warcraft and Second Life), these millions are the start of an exodus into the refuge of fantasy, where they experience life under a new social, political, and economic order built around fun. Given the choice between a fantasy world and the real world, how many of us would choose reality? Exodus to the Virtual World explains the growing migration into virtual reality, and how it will change the way we live--both in fantasy worlds and in the real one.

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Kirkus Reviews
The migration of millions of people to the virtual worlds of massive multiplayer games will lead to public-policy changes in the real world. So predicts Castronova (Telecommunications/Indiana Univ.; Synthetic Worlds: The Business and Culture of Online Games, 2005), an enthusiastic guide to the "transformative technology" of digital games. His clear explanation makes the experience understandable even to readers who have never participated in Second Life or EverQuest. The games are attractive, he argues, because designers have learned how "to make people happy through manipulation of the social order." The experience of happiness in virtual worlds will lead to "increasing dissatisfaction with real-world governments," which will be forced "to become more fun." Castronova draws intriguing parallels between game design and such economic and political issues as employment, equality of opportunity, wages and social insurance, but he overstates the inevitability of change. It's misleading to compare game designers-who have the luxury of iterative testing in a controlled environment and the responsibility to deliver a discrete set of features-with public policymakers, who face more serious challenges with greater political and economic constraints. The father of two young children, Castronova acknowledges worrying about the impact of the fun society on parenting, a job that requires a sustained work ethic but "little moment-to-moment happiness." (There are, he notes, no children in virtual worlds.) Otherwise, he admits to being "pollyannish" about the future we can expect when the insights of hedonistic psychology flow from virtual to real life. He completely ignores the public and personalconsequences of millions of people choosing to leave reality, including the inevitable further weakening of already fragile community and social networks and organizations. No game designer, however skilled, can redress the emotional impoverishment and isolation of people who choose to invest themselves in virtual rather than in flesh-and-blood relationships. Fails to consider the possibility that the fun society may turn out to be a dystopia. Agent: Andrew Stuart/Stuart Agency
Christian Renaud

Edward Castronova has again charted new waters to the virtual worlds emerging as the next frontier. He has proven himself as the oracle of the virtual world revolution.
President of The AttentionCompany and co-author of John Beck

A book full of insights about our online present and a hopeful look at the future where politics and economics will be increasingly governed by the rules of video games.
virtual world designer Raph Koster

As virtual worlds rise in popularity, they are bound to have effects on the way we live our real world lives. Dr. Castronova has put together a persuasive case that the real world may begin to model its institutions on games simply because the general populace finds them more fun. It's an eye-opening tour through how virtual worlds are run, and why practical, enjoyable governance is very different from the systems employed today.

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Exodus to the Virtual World

How Online Fun Is Changing Reality

By Edward Castronova

Palgrave Macmillan

Copyright © 2007 Edward Castronova
All rights reserved.
ISBN: 978-0-230-60861-0




A holodeck is a perfect simulation room, a science fiction fantasy from the TV show Star Trek: The Next Generation. As conceived there, the holodeck allows users to enter into a deeply accurate simulation of any environment, from the Wild West to the surface of Pluto. Moreover, the holodeck can be populated with simulated people who are just as realistic as their virtual environments. On the TV show, these holodecks are for training and occasional entertainment: Characters use them to practice Klingon fighting moves, or to solve Agatha Christie mysteries. According to the scripts, when the training (and fun) is over, the real people go back to their "real" work of maintaining and operating a starship. The writers, no doubt catering to their sense of what the audience expects, apparently believe that if a holodeck existed, it would be used like a super-duper but serious TV: Mostly for mild entertainment, but occasionally for working on mental and physical skills; the same mix of sitcoms, training videos, and exercise programs, but super-duper.

As an economist, I have always been puzzled by this mild conception of the holodeck's effect on the Star Trek crew. Economists generally argue that people will pursue as long as possible activities that please them. If Activity A is more pleasant than Activity B, but has the same cost in terms of money and time, Activity A will be chosen first. A person only switches to Activity B when Activity A gets too boring or too expensive. This is the basic economic theory of time allocation, described first by Nobel Laureate Gary Becker almost a half century ago and since confirmed by reams of empirical evidence. And according to this theory, the crew's use of the holodeck is going to be driven by how entertaining the holodeck is, relative to other activities, and how expensive it is to use. It seems to me that a holodeck, on the Starship Enterprise or anywhere else, would be an almost infinitely entertaining toy. Remember, it is said to be programmable to produce any scene desired, including other people. The holodeck seems available to every crew member, free of charge. An infinitely pleasing toy, for free. Considering such an object, the question is not why people spend time with it, but rather why people spend time doing anything else. Why isn't every single crewmember in the holodeck, all the time? If the technology truly existed as described, economics clearly predicts that all crew members would program the holodeck to produce their most desired fantasy existence, and then disappear into it.

But if all crew members are in the holodeck, no one will be running the ship. If you put a holodeck on every starship, no starship would ever report back to base; indeed, no starship would do anything at all.

Now imagine what the world would look like if someone invented and marketed a holodeck not for starships, but for every home. This scenario has moved from the realm of nerdy speculation to that of practical policy. A new technology has emerged, in just the last five years, that isshockingly close to a holodeck. Already today, a person with a reasonably well-equipped personal computer and an Internet connection can disappear for hours and hours into vast realms of fantasy. These computer-generated virtual worlds are unquestionably the holodeck's predecessors. This technology will draw in millions and millions of people, and many of them will indeed dramatically reduce the amount of time they spend doing things in the real world. These developments, which will take place over the next one or two generations, will probably not bring our "starships" to a grinding halt, but they will alter patterns of daily life in a significant way.

This technology is known as virtual worlds (or more precisely, synthetic worlds): massive multiuser online environments where millions of people live out a collective fantasy existence. It is not hard to do. Right now, you could put down this book, go to your local store, and buy Lord of the Rings Online by the game development company Turbine, Inc. After setting up the software (including agreeing to a monthly fee of about $10 to $15), the character you've created, an avatar, will enter a synthetic rendition of J.R.R. Tolkien's Middle Earth. Looking around, you'll see a beautiful landscape with trees, grass, birds, rabbits, lakes, and little cottages. You'll also see lots of other characters, some being run by the system's artificial intelligence engines, others by people just like you. Press the "Enter" key and type a sentence; what you wrote is transmitted to everyone else in your vicinity just as if you were in a crowded room and had spoken the sentence aloud. The people in the world will now react to you as well, asking you what you meant, what you want, where you are going. That quickly, you are virtual worlding. You've gone off to the virtual frontier.

Access to these experiences is growing rapidly. World of Warcraft, by Blizzard Entertainment, launched in 2004 and quickly acquired one million subscribers, a first for a North American game. By 2007, the subscriber base was eight million. Lineage, by NCSoft, had over two million subscribers. The teen hangout world Gaia Online, by Gaia Interactive, does not charge a subscription fee and had grown from nothing to over two million unique monthly logins in just one year. The social world Second Life boasted several hundred thousand registered accounts in early 2006; by mid-2007 it had over five million. At these growth rates, a currently conservative estimate of 30 million synthetic world users will be quite low by early 2008. Already, the use of holodeck-like systems is spreading in the population. That may not seem very serious at first, or likely to affect how any of the rest of us live. But the fact is, so many people are becoming immersed in these synthetic environments, and spending so much time and energy there, that the combined effect is like the emergence of a new country. People buy and sell things in these worlds, and the amount of stuff being bought and sold is enormous. Moreover, each virtual world spawns a large and robust exchange rate market where people trade the currency of the game—gold pieces, usually—for real dollars. Economically, that's just an ordinary foreign exchange market. What's shocking is that this market is not only robust and stable, but huge. It is worth restating: people who own gold pieces and other forms of play money inside virtual worlds are selling them for real money, and the amount of real money being used in this way adds up to several hundred million dollars per year. This trade too is growing exponentially. Whether or not this development seems interesting or "real" or fun to us on the outside, the fact is, it is there. It is getting bigger and bigger. At some scale, at some size, it begins to have effects on other parts of the economy. When the number of virtual-world users expands to one hundred million or two hundred million or one billion, the economic activity generated within and around these games will be big enough that everyone will have to pay attention. Whether you play these games or not, gold pieces will mean something to you.

Despite the fact that the virtual world and the real world intersect with and impact one another, it seems best to use language that points out the contrasts: Worlds that are created completely by design and live only within computers are synthetic, and the world of earth, air, fire, water, and blood that we've inherited from our forebears is real. These are useful labels for two domains that are equally significant but distinct. I sense that these two domains are in competition with one another. An exodus is under way. Time and attention are migrating from the real world into the virtual world. The exodus will strengthen, I believe. Improvements in technology will make virtual worlds into veritable dreamlands. They will be more fun, for more people. Simple economic theory predicts that in this competition, the real world is going to lose. This loss will put pressure on the real world to adapt. The broad outlines of what that adaptation must be are surprising but not hard to see. If it is to survive unchallenged, the real world is going to have to offer experiences similar to those available in virtual worlds. In short, the real world will have to become more fun. A severe shock to business as usual; a revolution.

The changes this "fun revolution" will unleash can already be seen at the level of individuals, those who have become immersed in synthetic worlds. To introduce what these changes might look like, consider a hypothetical story, typical of the people who now negotiate the boundary between the synthetic and the real. Though this probably isn't the story of any actual human being, it does illustrate the kinds of experiences that many actual human beings are already having; it predicts the kinds of experiences that many millions will have in the decades to come.


Our story's hypothetical protagonist is Carla, a 35-year-old unmarried white-collar worker with no children. She spends her days managing the office of a car dealership, her nights online in a 3D environment called Second Life, produced and managed by the Silicon Valley company Linden Labs, Inc. In Second Life (SL), Carla has chosen a body that looks quite a bit prettier than her real body, but that sort of choice has been amply studied by previous Internet researchers. What's new is that Carla is also a producer and an entrepreneur in the virtual world. SL has a production technology that allows users to build whatever they want—rockets, talking flowers, bizarre hairdos, and so on. The way it works is simple: In a dialogue box you can click on various options to create simple objects. You can then combine them into more complex objects. You could make a table out of one flat rectangle and four tall rectangles. If you can write code-like instructions, you can make even more complex things, from huge buildings to facial dimples. Using this production technology, Carla can make things in SL. The production technologies in other worlds don't give you this kind of freedom, but every single one of them does allow you to convert raw materials you find in the world into more complex objects. Every synthetic world has a production economy, a supply side to its markets.

Carla can sell the things she makes to other people, because SL has a currency, Linden dollars. This again is not hard. She can build a store to house her wares and automated vendors to conclude transactions. She can make billboards that advertise her store's location. Let's say she makes dresses. People will come to her store because they see nice-looking characters and ask, "Where did you get that dress?" In other words, the market in SL works like that in real life: word of mouth, reputation, craftsmanship, fair dealing, honest prices. And these market and business conditions are the same in every synthetic world, although again not with the same degree of freedom as SL affords. In a game like World of Warcraft, you cannot make just anything, as you can in Second Life. But you can make one of hundreds of thousands of things, using specific recipes, and then you can sell them using a synthetic currency. Your business acumen will matter. If you do well, like Carla, you will soon acquire a mass of virtual currency.

What then? What does one do with a virtual fortune? One option is to spend it on virtual things. Carla might want to buy an SL mansion that someone else has built, rather than spend all the hours to build it herself. But another option would be to liquidate the virtual fortune by turning it into real money. Carla can easily do that. Linden Labs provides a currency exchange market called the Lindex, where people who want to sell Linden dollars meet people who want to buy them. It runs a lot like eBay—anonymous buyers and sellers use a reputation system to choose whom they want to deal with, and all transactions are concluded electronically: Your Linden dollars go into my SL account, and my real dollars go into your real bank account. In case there's any doubt, yes, people do want to buy Linden dollars. If you buy Linden dollars by the truckload, you don't have to build anything in SL —you just buy the things other people have built. You could move into a mansion on your first day. While some people enjoy SL for the joy of construction, many more just want to play out an alternate reality, assuming a wildly different body type, a flashy car or spaceship, and a big mansion. Such people are more than willing to spend $10 or $50 in real money to get a really sexy character or a really big swimming pool. These folks will buy Carla's surplus Linden dollars, allowing her to turn her virtual fortune into a modest real income.

This is where things get interesting to an outsider. Let's say Carla's hours in SL result in about $1,200 monthly in real income. Carla, being a low-level white-collar worker, might have a take-home pay from her real job of $1,800 monthly. Carla's total productive contribution to the economy, measured by the amount of money that other people are willing to pay her, is worth $3,000. But 40 percent of it occurs in a synthetic environment. What does this mean for the economy as a whole? The number we use to measure economic activity for a whole economy is the gross domestic product (GDP): the total value of goods and services produced. So, fine, we add Carla's $3,000 to GDP, noting merely that 40 percent of it came from online production. But what about the things she made in SL but did not cash out? She made a lot of Linden dollars that she never sold for real dollars. Do they count in GDP as well?

There's no right answer. When we unpack "GDP" into "gross domestic product," some revolutionary thoughts come to mind. What's the domicile here to which domestic refers? Is SL part of America? If so, then we ought to be counting all of Carla's SL production as part of U.S. GDP. It was produced in America and it was sold in America. Sure, some of it was sold for Linden dollars, but that doesn't matter. If I pick cherries from my orchard and give them to you for honey from your honeybees, it's barter, not a money transaction, but it still counts as production (not to mention taxes). All of Carla's production counts. Well, that notion is going to unsettle lots of people when they first hear it—"You mean, somebody goes into a video game and makes flowers, and we're supposed to count that in GDP?"

If we go the other way and declare that Carla's SL production is not part of the U.S. economy, we have just decreed that every minute that Carla spends producing in the synthetic economy is lost to U.S. GDP. Now imagine a future in which most Americans spend a good fraction of their time in synthetic worlds, and a lot of what they do involves making virtual things for sale or trade to others. (That's an extremely likely future, but we will get to that a little later.) Let's say the American economy ends up working like Carla does—60 percent of production in the real world, 40 percent in virtual worlds. Think about how GDP will evolve as we move from the current situation to this likely future situation. Today, 100 percent of economic production is in the real world. In the future, only 60 percent will be. If we do not count virtual-world production as part of GDP, then our GDP measurement will fall by 40 percent as this future unfolds. That fall would be equivalent to the decline in GDP during the Great Depression. And GDP is not the only thing that would fall. If we declare that the SL economy is separate from our own, the IRS gets no sales tax from transactions there. No income tax on virtual earnings. No Social Security contributions. No Medicare contributions. No unemployment insurance contributions. The real world would perceive this as a severe economic collapse, and the power and influence of government would wane considerably.

This is not the place to argue whether that would be good or bad. The point is that the changes about to be imposed by the looming exodus from the real economy are extremely disruptive. Either we will have to rethink completely our notion of what's real, or we will have to accept a drop in economic activity not seen since the 1930s.

Strange though it may seem, the first option is better. Our initial reaction to all of this might be that the events in a synthetic economy are not genuinely real, and therefore can't possibly matter. But many very smart people, from Shakespeare to Baudrillard, have argued that reality is an elastic concept. Society itself, they have said, is best thought of as a kind of virtual reality environment. The cultural world is a construct; you can see evidence for that in the way so many "truths" in "reality" end up being very ephemeral. During the Great Depression, you could buy a sandwich for a dime. It used to be "true" that women were not smart enough to vote. And it was once said in America that bellbottom pants and tight orange shirts looked good on a man. Many such "truths" have faded away, thankfully. Anthropologist Thomas Malaby has pointed out that virtual worlds and allegedly "real" society share the same structures, the same patterns of behavior. He feels we should refer to virtual worlds not as worlds but asdomains, merely other places where human behavior plays out. They're all real.


Excerpted from Exodus to the Virtual World by Edward Castronova. Copyright © 2007 Edward Castronova. Excerpted by permission of Palgrave Macmillan.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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