Dr. McB explains the economy in Path of Exile

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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.

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ScrotieMcB wrote:

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harddaysnight wrote:

@Early in a league, I'd contend that gear flows from left to right, as much or more than it flows from right to left. Top tier players know the value of the gear, and the value of currency. They know what will advance them. A lower tier player gets a drop with some moderate demand. They sell it to a higher tier player. The lower tier player trades one thing they don't know what to do with, for another thing they don't know what to do with.

The higher tier player knows exactly what the value is in terms of progression. The gap between the left and right did not close, it widened. The lower tier player continues on their merry way in ignorance, gaining very little to nothing from the trade. While the higher tier player progresses. Sure, the lower tier player has the currency from the trade, but it either sits in their stash doing nothing, or it gets wasted on crap gear with a small likelihood of advancing them in the game.

First off, I did not say gear flows exclusively from right to left, I said if you add all trades together it flows from right to left. So there are some cases where gear flows "backwards." What there is NOT is this idea that this kind of thing happens as much or more than the direction of flow I described.

Second, I think it's a little ridiculous to treat people with less wealth as if they're too stupid to know how to use it. The main contributor to the tiers I described, more than anything else, is the raw amount of time spent playing the game. There are lots of smart poor players and stupid rich ones.

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ScrotieMcB wrote:

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Khoranth wrote:

Good post, except for one topic: the idea that currency should only be used by the top tier.

This may be the case in POE, but it is one of the reasons this game annoys me. In diablo 2, runes were the main currency, and anyone could use them to make good items.

I feel this is a misconception. Runes were essentially very popular and conveniently stored form of gear, not a well-designed currency.

The primary currency of D2 LoD was gems. Any player, no matter their wealth, could collect gems to cube up. Trading inventories full of perfect gems for mid runes was a common practice. And these gems were eventually consumed by rich crafters in pursuit of well-rolled crafted items.

Gold was also a currency in the game. Players could gamble gold at Gheeds by the millions. The ease of farming gold made it appear worthless to some, but there was a trade market for it.

The issue was these currencies, especially gems, were not convenient to store. High runes and SoJs, in contrast, were convenient to store. As a result, these were used as placeholders of value in stashes. However, both items don't perform currency functions. High runes and SoJs are not found by low-level players. Neither are useful for consumption by the player who "has everything." (Well, SoJs kind of were, thanks to Pandemonium event.)

To use a PoE example, let's say there were no Mirrors or Eternals in the game, and the max stack size on Exalts and Divines was 1. Stuff like 6L Shavronne's Wrappings would become the de facto most efficient means to store value per square of stash space. As a result you'd see stashes full of 6L Shavs just so rich players can jam as much value per square as possible. But that wouldn't really make Shav's into a currency; it would still be just a placeholder. There is no left-to-right flow, it would just drift about, aimlessly.

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

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Snorkle_uk wrote:

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ScrotieMcB wrote:

I think it's a little ridiculous to treat people with less wealth as if they're too stupid to know how to use it. The main contributor to the tiers I described, more than anything else, is the raw amount of time spent playing the game. There are lots of smart poor players and stupid rich ones.

I dunno, I feel like time spent, game knowledge and a drive to actually become wealthy are all equally responsible for where people are wealth wise. Most people are clueless and no matter how long they play they are always poor, theyre not stupid human beings, they just dont understand the aspects of the game that relate to the economy and never seem to really learn them, or just dont want to.

People who care to make wealth and know what they are doing will become more wealthy in the first few weeks of a new league than a lot of people who have been playing for a few years will ever be, and they can do that consistently, its not rng/luck.

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Khoranth wrote:

Either way, my point is: there was a variety of choices/options for a "mid bell curve player" in diablo 2, whereas in POE there is only one choice --> trade, you cannot really craft in POE(outside of top tier), due to the nature of crafting that you described, which was accurate.

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ScrotieMcB wrote:

I feel the shear volume of people who hacked D2 has a huge effect on how people remember the game. If you can't just cheat a BotD into existence, trade in D2 was the only choice for the fancy gears, perhaps especially if you were crafting. I do think crafting was more accessible in D2, but the contrast doesn't seem as high as you make it out to be.

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ScrotieMcB wrote:

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.



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.

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.

• Currency drop rates multiplied by the monsterlevel - so ~80x for Atziri
• A single use of currency on an item has cost equal to the itemlevel - so a rare itemlevel 77 item would require 77 Exalts per additional affix
• Maximum stack size for all currencies multiplied by 25 (max 1000 for Identify Scrolls etc).

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ScrotieMcB wrote:

[li]Maximum stack size for all currencies multiplied by 25 (max 1000 for Identify Scrolls etc).[/li]
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