Monday, April 21, 2008

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Subprime Mortgage Crisis Means Metaverse Opportunity?


The virtual world economy grows proportionate to the real world goes bust?

During a recent book interview, an ABC news anchor asked me what kind of impact the real world's subprime mortgage crisis and related fallout would have on Second Life's economy.  I speculated that it would probably provide an ironic boost, noting how the last recession of 2003 was important to Second Life's early growth.  "I can't tell you how many people I met then," I told her, "who were out-of-work programmers and web designers creating content in SL while they looked for jobs." 

That was an off-the-cuff answer, but the latest economic figures from Linden Lab suggest a similar pattern may indeed be happening now.  In-world spending activity has been increasing steadily since the mid-2007 prohibition against virtual gambling.  "The Second Life economy," Zee Linden noted, "does not appear to be affected by the slowing economy of the United States."  SL blogger Roland Legrand took a look at the numbers, and had a similar thought to me: "Could it be that people find refuge from the 'real world' troubles in virtual worlds and that the SL economy 'profits' in that way from the crisis?" 

Chasing that hunch down, I put the above figures side by side-- take a look.  On the left, Linden's internal economy performance, on the right, taken from the housing crisis' Wikipedia entry, the rate of house foreclosures. Please note, I am not in any way making light of people losing their homes-- one way or the other, in any case, the shockwaves of that loss are hurting us all.  Still, the pattern is hard to miss; as housing foreclosures go up, and the consequences ripple through the global economy, metaverse spending goes up, too. 

What do you think?  Coincidence, or causal correlation?


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Arcadian Vanalten

Actually, you can NEVER infer causality from any kind of correlation due to the risk of 3rd variable confounds (commonly called the Stork Effect). All a correlation shows is that there seems to be a relationship between the 2, but determination of causality, while tempting, cannot be done without empirical experimental research. Common sense may often lead us to hypothesize at these things, but as far as making a firm causal statement, well, common sense isn't as bulletproof as we like to think. History is littered with commonsense leaps of logic that didn't turn out to work the way we thought it did.
Sorry about the ramble. This article happened to catch me as I'm preparing my lecture for tonight's class (guess what in? *grins*--and no, again, there may be an odd coincidence there, but no causality between my syllabus and your article, LOL).

Troy McLuhan

As the graphs clearly show, the rise in SL user-to-user transactions caused the rise in US foreclosure activity.

Benjamin Duranske

In spite of what the talking heads on the morning medical minute on the local news would like you to believe, correlation does not equal causation.

Otherwise, we could surmise that the increase in the price of oil -- which tracks both graphs quite closely -- caused both the housing slowdown AND the increase in virtual world spending.

Or maybe they were both caused by the dollar's fall against the Euro.

Or maybe by the price of Google stock.

Or by the increase in NWN's readership.

Or the increase carbon emissions.

skribe Forti

It's interesting seeing Zee's comments because having spoken with several developers - including some very big ones - there seems to have been a fall-off in demand for new projects since the 'R' word (recession) was first uttered in November. That said, we've noticed a gradual increase over the last month or two.

Troy McLuhan

Before we all throw the baby out with the bathwater, let's remind ourselves that causation can lead to correlation. For example, the Friday weed count in my garden is correlated to the time I spent weeding it in the previous week (negatively).

So: When someone shows you correlation, you should ask for more information before pronouncing a cause-and-effect relationship, you *shouldn't* jump on the "Correlation Doesn't Equal Causation!" Bandwagon.

Arcadian Vanalten

True, Troy. My point is simply that noting that it's premature to state that since "A" correllates w/ "B", obviously A MUST automatically be caused by B. Correllational studies are usually the starting point for research, but NEVER the endpoint. It's an indication that there could be something there, but experimental research (as distinct from correlational studies) is required to declare any causality. It's not a bandwagon. It's just simple fact. B could be causing A instead, or A and B both could be under the joint influence of C instead (C being a variable that you've overlooked which may actually be more directly causing the variations observed in A and B).

Arcadian Vanalten

Err, I mean, A could be causing B in the first part of the last sentence, hehe. Got my variables tangled :P

Hamlet Au

In any case, I think it's uncontroversial that an RL economic downturn is having *some* impact on the SL upturn. It stands to reason that Residents who are out of work and/or being frugal with their money would spend more time in SL. The unresolved question is if it's more than a little.

Zippora Zabelin

Nice thought, but coincidence, tmho.
I won't deny that the US mortgage crisis has global consequences, but I think the average European citizen - like me - doesn't even notice. And it are also residents from Europe (and South-America, Australia and Japan) who have caused the economic grow of SecondLife.

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