The Science of Economics

September 29, 2004

University of Texas Law Professor Brian Leiter writes an extensive essay on the faliure of economics as a predictive science. While I certainly agree that economics is far, far from perfect, I disagree that it is an overall failure. Economics as a science is still in its early stages. Complex methodology designed to predict outcomes of many participants, like game theory, are only a few decades old. We're only beginning to develop the necessary tools for observation as well; economics is somewhat like quantum physics - it's nearly impossible to observe economic phenomena without affecting their ourcomes.

Perhaps the most interesting new method of economic observation and modelling has come from the creation of online virtual worlds. Massively multiplayer games are complex enough to allow for realistic modelling, yet still controlled enough to create concrete, verifiable theories. While research in this field is still in its infancy, some excellent papers have been written on the subject.

The next phase in virtual world economics is the shift from observation to creation. Thus far, all of the work done on virtual worlds has been from the perspective of a participant-observer. This observer has access to much of the information available in the given world's economy, but has no control over the global variables involved. The next logical step is for economists to create their own virtual world, with their own rules and restrictions, that allow for experiments to be created and theories to be tested. It is this type of environment, with many participants trying to maximize their virtual wealth under a specific set of rules, that will create the next big breakthrough in economics.