Dr. McB explains the economy in Path of Exile

Never attribute to malice what can adequately be explained by stupidity.
- Robert J. Hanlon

Stupidity is a strong word. However, I see a lot of misconceptions about the economy which attribute problems to malice, where all I see is human nature. I thought it would be useful to clear some things up.

1. The curve

This is a bell curve which approximates player progression in a league with trading disabled - or, more importantly, before trading becomes a factor in a player progression.



The far left of the curve represents those who haven't progressed much at all. Their stashes are nearly empty and their gear is junk.

The far right of the curve represents those on the cutting edge of in-game wealth. Their stashes are full of goodies and their gear is nearly best on the server, or actually is.

Those in the middle are at an average stage of progression. As a league gets older, the entire curve gets richer in absolute terms, but relationally retains this basic shape.

This bell curve is arbitrarily divided into four sections. I'm going to refer to the rightmost section as Tier 1, then Tier 2, Tier 3, and finally Tier 4.

2. Gear and currency flows

If you combine all trades in the economy, the net result is that gear flows from right to left. This is because players in the higher tiers find upgrades, then can sell their old gear, because it upgrades a player in a lower tier.

However, the upper tiers will not trade their old gear away unless they can get something worth their time. This is why economies have currencies. In simplest terms, a currency is a tradable game object which flows from left to right, in the opposite direction as gear.

A well-designed currency is very useful to the highest tier and less useful to low tiers. This causes it to have to appropriate flow. A good currency is one useful to the player who already has "everything."

3. The myth of egalitarian currency

Myth: Currency should be used by all players

This is a myth because currency is well-designed when it has strong left-to-right flow. If those on the left or center consume the bulk of currency, it doesn't flow because it is sunk. The game might still have currency sinks for general use (such as maps) but, for the most part, a currency should be something even the leftmost of players can find, and only the rightmost of players use.

Related to this is the idea that currency should be account-bound. An account-bound currency cannot have left-to-right flow, and thus wouldn't be a currency at all. It might still be a crafting material, but if it is not a currency something else would have to fill its economic purpose.

The bulk of currency is used by players in the Tier 1 group who cannot trade for an upgrade because no one has it yet. When the item you want is literally non-existent, your only option is to craft it. The invisible hand of Adam Smith routes currency to the stashes of the players who can get the most bang out of it.

4. Crafting and The Thrift Shop Rule

In an ARPG economy, anything "used" (already assembled) will always be cheaper to trade for than to create it "new" (using crafting materials).

Why? Simply put, if the cost to craft is equal or less than the trade price, then the buyer doesn't need the seller at all. The buyer can then just craft the item for themselves. Thus, in order to ensure items sell, sellers are forced to offer gear for less than the craft cost.

This is an immutable law. The only exceptions are hustles and scams.

5. The gameplay purpose of trade

As a result of the Thrift Shop Rule, unless ripped off or scammed, the buyer always benefits more than if no trade had occurred. The more a player is in the buyer role, and the less they are in the seller role, the more they benefit from trading.

One common myth is that those in the top tiers somehow have a parasitic relationship with lower tiers, even when not scamming, etc. Although they are (by tautology) richer than those in lower tiers, this is not a result of abusing those in tiers below them. It is a combination of simply playing the game for more time, and/or luck, and/or trading with those in the tiers above even themselves. This is an inevitable conclusion of the Thrift Shop Rule.

Thus, the gameplay purpose of trade is revealed: it is a catch-up mechanic. The further left you are, the more trade improves your gear, outpacing farming in terms of acquiring upgrades. For those at the highest tiers, they cannot trade for upgrades and must craft them, which is always more expensive. Trading helps bridge the gap between casual players and no-lifers, but does not close the gap completely, ensuring those with the most time/luck spent are still ahead.

6. Relative supply and demand

Let's look at the Tier 1 and Tier 2 population groups.

Tier 2 is a more populous group than tier 1. As a result, their supply of currency is greater, and their demand for upgrades is stronger. By supply and demand, this puts the Tier 1 group at a favorable position, as there is less competition from other players within the tier. Although the Thrift Shop Rule still applies, Tier 1 players can expect to barely undercut the cost of crafting the item and still have it sell.

Now let's look at the Tier 3 and Tier 4 populations. Since the Tier 4 group is less populous, Tier 3 sellers should expect that internal competition will result in some items never bring sold. As a result of this fierce competition, Tier 3 sellers must be willing to set prices far, far below the cost of crafting an item directly. Tier 4 players can enjoy extremely cheap gear upgrades, paying a pittance for significant boosts in gear.

As a result of these relative (dis)advantages in supply and demand, it is easy for Tier 4 to advance to Tier 3, and difficult for Tier 2 to advance to Tier 1. This modifies the initial bell curve by causing it to bunch up more at the middle, demonstrated by a shrinking σ in the graph below.

Note that this graph is not fully accurate as it does not show an overall increase in progression for traders; the σ=1 graph should be shifted right about 2 units. (As deviation σ decreases, expected value μ increases.)

7. The Tier 2 Hump

The superior bargaining position of players on the far left and far right reveals how the trading system fails to continually fulfill its purpose as catch-up mechanic. It begins by working well - those on the far left catch up to the middle readily enough, which gives the economy a feeling of great power and efficacy which has been many a SFL thread complaint. However, once we reach the Tier 2 population, the superior bargaining position of Tier 1 players based on relative population size has roughly the opposite of the intended effect. Those closest to the middle are hit worst, facing unfavorable supply/demand situations both buying and selling. Although Tiers 1 and 4 benefit from trading, Tiers 2 and 3 have trouble gaining traction.

The Thrift Shop Rule dictates these players are benefitting more than if they crafted upgrades themselves. However, this advantage over self-crafting reaches such narrow margins that it is only slightly better to trade than craft. The speed of the catch-up mechanic slows to a molasses pace (although it doesn't quite stop).

Unfortunately, this creates an unpleasant trading experience for precisely the most common and largest group of the trading population.

This is the population which develops superstitions and myths about why they are unable to progress from Tier 2 to Tier 1. Myths such as economic masters controlling the economy, or exaggerating the effect of RMT in the game. There is no need for such conspiracy theories because Occam's Razor tells us the bell curve is the most likely and best explanation.

8. Ease of Trade

Logically, it makes sense that a horribly unfriendly trade system would barely be different than no trade at all. Thus, a very difficult-to-use trade system has a very small impact - it barely decreases σ and barely increases μ (small overall right-shift). The catch-up effect propelling Tier 4 into Tier 3 is less pronounced (prices for low-tier gear, and the hump between Tier 2 and Tier 1 is still present but not as severe (the difference between trade values and self-craft is large to compensate for time lost by the buyer).

In contrast, an extremely easy-to-use trade system sees dramatic decreases of σ and a large increase in μ. The catch-up effect would increase, causing even lower prices for "junk" gear. The Hump would become even more noticeable, as the difference between trade values and self-craft costs shrink to near-zero values.

9. Easier Trade Myths

I feel I should discuss a common myth here, that if PoE had an auction house or similar system that it would be "easier to sell my small items." In most cases the effect would be the polar opposite, as the increased competition from "junk" sellers would likely transform such items into vendor trash. Items which were difficult to sell at 1 Chaos would likely become easy to sell at 1 Alteration (if sellable at all). Farming an item which would meet minimum sellable standards would become an increasingly rare occurrence.

That said, there are potential advantages to systems which make trade easier, such as reducing the gulf between the cost of crafting an item and the cost of trading for it. As I mentioned earlier, the difference would be reduced as trade became easier, and although the Thrift Shop Rule would keep trade prices lower, the difference could become so negligible that some players accept a 1% or 2% loss in the name of "fun."

Plus, trading would just be easier.

Your explanation has one major flaw. You're assuming that all players play the game with the same goals and the same rules. They don't.

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Shagsbeard wrote:

Your explanation has one major flaw. You're assuming that all players play the game with the same goals and the same rules. They don't.

did you even read the post?

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Shagsbeard wrote:

Your explanation has one major flaw. You're assuming that all players play the game with the same goals and the same rules. They don't.

I'm not assuming that. However, the folks who do not trade are simply not members of the populations I'm referring to. I apologize for any terminological inaccuracy.

A person is not predictable. Large groups of people, are.

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There is no need for such conspiracy theories because Occam's Razor tells us the bell curve is the most likely and best explanation.

Your post is a waste of time, ScrottileMcboggles. The people who need to read it won't, because they either don't forum, or they are a little on the dense side and the fact that there are paragraphs will scare them.

Unfortunately, you can't make stupid people understand that they are stupid. They simply do not have the capacity to recognise that they are less than optimal in the brains department.

But! Regardless of intellect level, as long as they are having fun with the game (and hopefully supporting it), then who cares?

I'll happily accept a few nutbag conspiracy theories, "rich getting richer herp derp" posts, and wailing against the injustices of the economic changes by GGG as long as the playerbase remains healthy and generally happy.

Hell, being stupid doesn't stop me having fun (although it makes for a lot of googling how to spell words when I post in the forums).

EDIT: Big ups if you're still posting on your phone, btw. Thats a hell of a wall'o'text

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Your post is a waste of time, ScrottileMcboggles. The people who need to read it won't, because they either don't forum, or they are a little on the dense side and the fact that there are paragraphs will scare them.

Unfortunately, you can't make stupid people understand that they are stupid. They simply do not have the capacity to recognise that they are less than optimal in the brains department.

I did not write this for the stupid or belligerent. I wrote this for the confused and the curious. There is a major difference.

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I fit the ignorant and blissful demographic Nait is referring to. Guess I'm a tier 1? No idea, really.

Either way, from what I understood, pretty interesting theory!

Is it Friday yet? :D

Not Friday yet :( But yeah, Blissful is better. Why worry about things too much? If you want to play economics and profiteering, do it in real life. You can buy cooler shit from IRL shops than from XYZ.

Given the time dependence for getting wealth and the fact that getting good gear allows you to have better tools to advance and profit from initial scarcity (in temporal leagues) I would say that the curve follows a Pareto distribution:



So the people with junk gear is more than it would be in a normal distribution, and the people in the middle are not necessarily a majority.

Also, it can be said that people prefer crafting materials over currency, so if orbs flow upwards, the system is not as fun as it could.

And the whole "economic masters controlling the economy" can be achieved via price fixing and monopolies (I remember one post of a member of a group of people describing that basically won a league that way, so the evidence exists).

Anyway, I agree about the whole "not going paranoic with rich people" thing anyway, but let's not be conformists.

Good post. Knowledge can be given, but unfortunately understanding can only be taken.