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Kevin McCabe
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Hi I am Kevin McCabe an economics professor at George Mason University. Over the last 30 years my research has been on how humans cooperate. To study human cooperation I've used a number of experimental methods including experimental economics, behavioral economics, economics systems design, neuroeconomics, and virtual world experiments. Here... Continue reading
Posted May 12, 2015 at Virtual Economics
Hi I am Kevin McCabe an economics professor at George Mason University. Over the last 30 years my research has been on how humans cooperate. To study human cooperation I've used a number of experimental methods including experimental economics, behavioral economics, economics systems design, neuroeconomics, and virtual world experiments. Here... Continue reading
Posted May 12, 2015 at VirtualEconomics
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Mar 15, 2010
Market mechanics play a huge role in determining market efficiency. We know that in the theoretical world of free-market economics,the market is perfectly efficient. Price is always in equilibrium, and perfectly reflects consumers' aggregate demand. We also know that the real world is not like this.The mechanics of the market in which trade takes place explains why we have cases in which the free-market does not provide an efficient outcome. Take, for instance, information asymmetry. It is commonly recognized as a failure of the market. But where does information asymmetry come from? Some markets are set up such that information... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
We are surrounded by auctions everywhere we go. For example, buying products off the internet using Ebay or even Craigslist. In some stores you can even heckle the price down if you see that the product is damaged. If you go to garage and yard sales, you can negotiate the price also. Another item that you can change the cost is home buying. During the housing bubble purchasing houses was very common. Buyers were getting better and better as the housing market increased. Negotiation was key to their success. This is how buying a house works. You find a house... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
by Ricardo Breadbin In previous posts I've attempted to explain why we fail to see a more vibrant economy in Second Life. My primary argument has been that the user interface of the metaverse creates information asymetries that are on average far greater than the real world. These asymetries would, in the real world, be remedied by Akerlof's signalling theory. In second life, however, all signals are only as costly as the marginal cost of a package of computer code and the mouse clicks it costs you to apply said code to your avatar/product/parcel-of-virtual-land. That is to say, that all... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
by Ricardo Breadbin In my last post I sought to explain whether virtual worlds could ever reach a level of sophistication that they overcome the awkwardness generated by imperfectly recreated unconscious signalling. I am of the opinion that because a computer can never capture the nuances of human interaction via unconscious signals, virtual worlds will never be capable of being good substitutes for human to human contact. At this point the reader may ask: "well, what about e-commerce? Obviously, there is a thriving market between people even under conditions wherein there is almost no unconscious signaling taking place: two-dimensional websites,... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
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When I was younger I was fascinated with Power Rangers ( and like most of the kids, had a crush on the pink ranger!). So Power Ranger toys and memorabilia where the hot items of the time. Then the fad somewhat died... and gave way to Beanie Babies (those devils). And like all fads, they came to pass. These days the kids are crazy about those Zhu Zhu pets. The MSRP is listed at $8 a pop at Walmart, Toys-R-Us, etc. Funny thing is, if you try and find one during this holiday season, they're all sold out... but if... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
This week in class we discussed the topic of auctions, and effect that the mechanics of an auction can have on its outcome. Essentially, the auction is a miniature marketplace, designed to determine the fair market value of items that are usually relatively illiquid. However, when reading the works of economist Tim Harford, I was intrigued by the possibility of a nonmonetary auction. In economics, the value of an object is not always measured in money. Oftentimes we talk in terms of utility. The value of an item could be measured in the amount of time people are willing to... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
This week in class we continued to learn about auctions. We had class discussion and the finial class. The final class was interrupted by Second Life shutting down for repairs, at which point I played “The Finial Countdown” in class. At which point people started making jokes about the end of the world and someone played “It is The End of The World and I Feel Fine”. It was a fun last class and this will be by last blog for this class. The topic that I will do for this blog is “silent” auctions. I did this topic last... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
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During part of the Redskins game I work for a memorabilia auction. Most of the people who purchase items are restaurant owners who want to decorate their store. I have noticed throughout all of the games that fans buy more memorabilia from the team when they are performing well. Demand is great when the team is playing well on the field. We sell more items at higher prices. People bid more times throughout the game. It is common to see bidding wars on top products. Fans also buy more from the shops when the outlook of the game is good.... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
Of the largest on-line auction sites currently operating, Ebay and Amazon, only one uses the hard close which has opened the door to auction snipes. To know what this has to do with SL, first I'll give you a little information on the different types of auctions. Amazon operates an English style auction with a soft close which basically means it continues until all bids have been exhausted. This creates an environment where the price is continually rising until all but the highest bidder drop out which discourages any kind of sniping activities. Ebay, however, also operation on the English... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
Topic: Sniping Author: Dexter Whelan In discussing auctions with my peers, the topic of sniping came up. Sniping is the practice of bidding at the last moment in order to secure a winning bid at an online auction that is timed. As a person who has dealt with virtual auctions in the past, as I discussed in a previous post, I was completely shocked that this practice was up for debate all over the internet, had be banned (or prevented) in some auctions, and was also being discussed by professors and students ranging from Harvard University to Germany’s University of... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
You see, the title is a reference to first person shooter games...which involve sniping. On certain auction websites, sniping is a legitimate and useful strategy. On other auction websites, sniping is useless. The rule that determines if sniping is useful or not is if the close of the auction is hard or soft. A hard close auction signifies that at (Arbitrary example) noon on Thursday the velvet framed portrait of Elvis is sold. A soft close auction signifies that if a bid comes in at (equally arbitrary example) 11:58 am Thursday the auction will stay open for a little longer,... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
by Ricardo Breadbin I had considered writing a post about auctions in virtual worlds but, ultimately, being as this is the final post of the series, I'd rather sum up. At the beginning of this quizzical jaunt through Second Life I wrote that: "It is a commonly overlooked (or perhaps deliberately ignored) fact that most middle class individuals now have a box sitting somewhere near their comfy bed, that can deliver --to them-- the most obscene pornography, the most violent images, the most subversive information, and dangerous independent thought that man has ever dared produce or observe." My sentiments were... Continue reading
Posted Dec 16, 2009 at Terraceconomicus Muse
This week in class we learn or at least tried to learn about auctions. The experiment seemed to have technical problems and did not seem to work well. The class with the slideshow presentation was a little confusing to me and much of the rest of the class. So for this blog I will talk about my experience with Auctions. I will talk about and analyze the “silent” auctions that I have been a part of. A “silent” auction is an auction for a number of items that takes place over a “set” time period when the bidders write down... Continue reading
Posted Dec 6, 2009 at Terraceconomicus Muse
The latest in my SL adventures involved taking an auction experiment dealing with the English and Dutch styled call market auctions. Simply explained, English auctions are the kind where the bidding starts low and builds until the highest bidder wins. Dutch auctions however are just the opposite, they start ectremely high and then lower incrementally until a willing bidder purchases the item. And a Dutch English auction creates a scenario whereby the item being auctioned off acts as an English good to sellers and a Dutch good to buyers. While a little confusing to me as I'm not that familiar... Continue reading
Posted Dec 6, 2009 at Terraceconomicus Muse
The beauty of auctions, especially virtual markets like eBay, is that it brings buyers and sellers from remote locations together creating market efficiency. What's even better is that eBay offers sellers to utilize a variety of auction types: normal auctions, reserve auctions, fixed price, and Dutch auctions. Each auction type of course is designed for different purposes. A normal eBay auction is where an item is listed for a fixed period of time and buyers are invited to bid for it until the auction has ended. The winner of an eBay auction is the highest bidder when the bidding has... Continue reading
Posted Dec 6, 2009 at Terraceconomicus Muse
Topic: Comparative Auctions: World of Warcraft, Second Life, and the Real World Author: Dexter Whelan The ease and method of selling and buying of goods and services from other people can define the success of a business. The internet allows for a spread of information that makes shopping, buying and selling in today’s world much different, in this regard, than it was in the past. With the internet also comes the opportunity of massive multiplayer virtual worlds that are just now starting to come into their own limelight. In the real world, we often shop for most, if not all,... Continue reading
Posted Dec 6, 2009 at Terraceconomicus Muse
<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/QSAqew4KSIM&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/QSAqew4KSIM&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object> This is what most people think of when they think about auctions. That video and this website. And while they are reasonable starting points for auctions, they leave out many other options. There are two basic methods of running an auction; English and Dutch. English auctions are familiar to most people. You have one seller with many potential buyers, the price starts low and gets higher over time. The highest uncontested bid wins the auction. Dutch auctions have the same setup, one seller with many... Continue reading
Posted Dec 6, 2009 at Terraceconomicus Muse
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Frank Knight made an enduing distinction between risk and uncertainty: "Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term,... Continue reading
Posted Nov 22, 2009 at Terraceconomicus Muse
This week in class we discussed the problems with reputation and The Expert Problem. With reputation we had a field trip where we got a quite useless rating ad on Second Life. This was a relevant example of the many problems that Second Life faces with its very makeup. There is no real way to know who you are dealing with and if they can be trusted. But we also dealt with the expert problem http://www.nytimes.com/2007/11/07/business/07leonhardt.html?_r=1&scp=1&sq=henry%20schneider&st=cse.) . This is a problem that faces us all whenever we have to deal with experts on an issue. We have to do business... Continue reading
Posted Nov 22, 2009 at Terraceconomicus Muse
Knowing who you do business with is just as important as the bottom line. Consider a customer who is buying on credit - would you be willing to sell him your goods if you knew he had a poor track record? This problem is easily solved with credit ratings and background checks in the real world, but in SL - there is a multitude of uncertainty. True, there are apps and HUDs out there that allow you to "FOIA" a potential customer's background (membership status, days as member, approval rating, etc), however there is no way you can find an... Continue reading
Posted Nov 22, 2009 at Terraceconomicus Muse
One aspect of doing business with products and services that are entirely virtual with other people with a virtual presence that the real world lacks is a dearth of mechanisms to determine how trustworthy other people are. In the real world there are a lot of methods do gauge how trustworthy another person is, and these methods come from all sorts of areas; economics, biology, psychology, and undoubtedly others. There are attempts in Second Life to gather some sort of "Wisdom of the crowds" about the trustworthiness of the people playing the game. By aggregating the views of many raters... Continue reading
Posted Nov 22, 2009 at Terraceconomicus Muse
Reputation is a very important factor in society. When people are familiar with a brand, person, or object they know what is likely to expect from it. If the reputation is negative then less people will buy the item or do business with that person. If the reputation is positive then more people will trust the brand or person and be more likely to do business with them. The same thing happens on ratemyprofessor.com. Many teachers are listed on the site. They all have a rating between good, average, and poor quality. The teachers also have user comments about them.... Continue reading
Posted Nov 22, 2009 at Terraceconomicus Muse