What's the simplest model for an economy with full price discovery?

So game economies are always based around pre-set prices, and I was wondering about building out a more complete and full on price discovery system. Let me explain.

In game economies, when we build out a set of items or whatever, we give each item a hardcoded price. If we want to build in some economic simulation, what we do is generally vary the price up or down some percentage from that hardcoded price.

So as a given, we generally start with the idea that wood is worth 10 gold. Then if there is a wood shortage we multiply that value up by like 1.2. All operations with the economy is fundamentally a multiplier against the 'fair price' of 10 gold.

This makes sense and is fairly easy to work with, but its fundamentally at odds with market theory - wherein the proper price for something is the price the market will pay. In capitalism the idea of a 'fair price' doesn't really exist. Wood isn't worth 10 gold, its worth whatever people will pay for it at a given time.

I realize that this might not be good gameplay, or be worth doing - but I have to wonder...

What's the simplest way to build out an economic model that doesn't include a hardcoded starting price for goods? What are the bare bones elements that you would need to have a market discover the price of wood without hardcoding a starting value?

 

Well, obviously you'd need to model supply and demand.

 

Not true. Lots of games use supply & demand pricing. Look up pretty much any game with "Trader" in the name (often in combination with some variation on "star" or "galaxy", at least in the games I've played).

 

Yes, but all of these games have a starting hardcoded price for each type of good. Then they use supply and demand as a multiplier against these 'fair value' prices.

If we do not hardcode prices at all, whats the simplest system needed to have markets agree on a price?

Obviously you would need some representation of supply and demand.

• So if I wanted to build a model for this, what is the model with the fewest parts?

• What is the simplest model needed to determine the price of something without a hardcoded starting point?

• Why should something be 10 gold and not 1000 gold?

 

supply and demand. That's how economists model the economy in simplest terms.

Supply and demand.

Supply and demand. Remember that money is no different than any other commodity. It's value is determined by supply and demand as well. Whether something cost 10 or 1000 depends on how much demand there is, how much of it there is vs. how much money there is and how bad people want money.

If you can't figure out how to determine prices based on supply and demand, than maybe you haven't thought about the availability of money in your economy?

 

That's solid. So how do we build out availability of money?

Do we need to back currency with a commodity?

 

PS, as a note - saying "supply and demand" doesn't actually resolve anything. There are different ways to model something like supply and demand, from macro curves, to bid/ask spreads driven by individually modeled agents.

What inputs and outputs do we need for supply and demand?

What is the simplest model that can support price discovery without having a fixed starting price?

If we build out currency backed by commodity, does a solid model require the currency issuer to hold reserves?

 

OK, these are good questions. I would start by modeling need. For each commodity, come up with a formula that indicates how badly consumers in the market need it — which will depend on how fast it is consumed, whether it is a luxury vs. a necessity, the population size, how much of the commodity an average person needs, and how much they already have (off the top of my head).

Then, you'll need a model for how much money your average market member has (and that too will have some rate of growth, and perhaps a rate of decay to model all the expenses you're not tracking).

Then on the supply side, you of course need to know how much of the commodity sellers have to sell.

Now the suppliers and consumers essentially do asks and bids, respectively. Each of these is a function as well: the supplier's ask curve says how much of the commodity they will sell for a given price; and the buyer's bid function says how much they will buy at a given price. These will both go from 0 (at a ridiculous price) to infinity (at a ridiculous price the other direction), but of course limited by actual money and commodity supply. You can work out these curves as a function of the consumer need and supplier supply (which you can treat as "need" in the sense that suppliers would like to convert all of their commodity supply to money; the more they have, the more they need to get rid of it).

At that point, I would start doing random samples. Pick a price anywhere in the range between the supplier's minimum ask and the buyer's maximum bid. From the bid/ask curves above, calculate how much commodity changes hands at that price (it'll be the minimum of the two). Update the need functions and repeat. To display a "current price" for the commodity, just show the weighted (by amount of goods transferred) price over the last N such transactions.

No, it's not simple. I suspect there isn't a simple model that will do what you're asking. But the above simulation method isn't too bad. Oh, your bid/ask functions may need to take into account the current average price of the commodity (human traders certainly take this into account). Don't worry about that; just plug in an initial price of 1 per unit, then run the simulation for a few thousand cycles, and the prices should quickly settle down to the "real" price. (Possibly you could short-circuit that with more math, but the simulation approach is easy and fast enough.)

 

So.... this essentially has a curve for supply/demand, which then you have suppliers/consumers place bids and asks at various points on the curve?

Is the bid/ask driven off the curve, or is the curve driven off the bid/ask? (Not sure if that makes sense - but like what is driving what?)

 

Ok. So let's imagine that we peg our coins to grain. We say that you can redeem one coin for 10 grain.

If we use this system, then we can eliminate the need for a 'money supply' or a market for money entirely. We can just use whatever commodity we back the currency with.

I think this system makes the economy much, much more stable in game. Basically, our entire economy is barter driven, and we don't need to figure out a separate 'market for money' or whatever. All we need to do is figure out:

How much grain can we trade a for x? How much grain can I trade a sword for?

And we can figure this out by looking at the in game production/consumption of grain and swords. So in game terms:

We have blacksmiths making swords and farmers making grain, armies need swords and everyone eats grain - so we can figure out roughly how much grain there is and how many swords there are (and how much people want either).

So, if you have a big war, demand for swords can go up (each sword is more valuable), but if the enemy army is burning all your farms then supply of grain goes down (each unit of grain is also more valuable). This kind of thing could make for some pretty interesting mechanics...and it also kind of illustrates why you probably shouldn't back your currency with something like grain.

 

Sure, but once you do that, aren't you going back to setting an initial price for everything?

Or I guess you are setting an initial price for one thing and then calculating all of the other items' prices based on their relative value to grain?

 

Sorta but not really (?), I think it goes back to your original point: what's the supply of money?

I think the main difference is that you have a solid, in game representation of the supply and demand of commodities. So, for grain, we have farms making grain and people eating grain.

So roughly the value of grain is like

farms/population

. Both of which have an in game representation.

If I want to exchange grain for swords, what I basically need to do is:

(farms/population) / (soldiers/blacksmiths)

- that's basically our rough exchange rate.

That's really different from hardcoding grain at 10g and swords at 50g, then applying various multipliers you need to guess at. Oddly enough, I think this might actually be way simpler.

 

In my game a lot of items are produced by cities, which also want to buy other items. I set a base price for the item and a max number available either for sale if produced, or wanting to purchase, which is based on the total population of the city and some other factors. As players buy products produced by a city, the price increases up to 20x the base price. The reverse occurs for cities buying items, where with full demand they will pay 20x, and as players sell into that market the price will drop all the way down to the base price. Full supply or full demand for items slowly restores within 2 days, and all amounts and prices are recalculated every hour.

 

Is it a sim city style game or a trading style game?

 

Its an MMO game set in the age of sail. One way to make money is moving trade goods between cities.

 

Do you model pricing under blockades or in war time (or other extreme conditions)?

Is the trading aspect interesting or kinda meh? Part of the reason I'm looking at this is to think out ideas on how to make trading into deeper, more interesting game play.

I really want the economy to be systems driven, so its a real sandbox. But every way I've thought about it is a ton of work.

 

I don't do anything specific for blockades/war. If it is difficult for players to get to a city though, then the system will make it more lucrative to do so (prices will be lower for items sold to the player, prices higher when bought from the player) just do to the supply/demand mechanic.

The trading itself isn't that complicated, so on its own isn't very exciting, though it is a means of getting players to travel and take risks. While traveling to find better markets you'll encounter hostile ships, and further away from friendly territory the enemies will be stronger. This then encourages cooperative play, as the best trading ships with large cargo bays are too slow and aren't well armed enough to handle the more dangerous AI enemies, or other players. So trade is a means to encourage exploration, cooperation, and engagements.

 

That makes sense. For what I'm working on atm, I really want to drive the heart of the game (the sandbox) from the economy.

Stuff like wars being fought to control a monopoly or profiteering or the player creating a shortage.

Might sound odd, but I kind of want the player to be able to express creativity in how they manipulate (or work with) the economy. Maybe too niche, but I think that kind of thing could be really fun.

 

It's not really about the price, it's what else that money can buy. A monetary value means nothing.

Lets say I need food, what food? Are there low quality (easily accessible) and high quality (hard to get, expensive) food sources? How important is it to me to have a high quality food source, how does not having it impact, for example, my ability to produce wood, if that's what I have to offer?

To create an economy you have to draw up some kind of fuzzy 'importance' value for each participant, for each product they either buy or sell, which is specific to their situation. To do it with any degree of accuracy and balance, it's probably going to be necessary to run the economy for a while with a learning algorithm.

Probably easier just to hardcode a value though. I'm setting up a space economy and I'm just going to estimate good values, and if necessary force everyone to behave in a way that doesn't break them.

 

The simplest way is this:

Also money is basically a token that abstract the ledger through distribution, hence why it's quantity fluctuate based on an authority (who has the role of the ledger keeper, by emitting or removing money through various mechanism). Money values fluctuate based on supply and demand, but it's special, as it the demand and supply are relative to the emergent collective value generation, see also inflation deflation, stagflation.

The biggest thing that impact economy IMHO is "speculation" not in the trading sense, but the fact that there is a temporal delay between spending and result, for example you need some spending to sow, but harvest will only happen later, it's not guarantee that the harvest is great, so values is delay and it create uncertainty, stock market is really the abstraction of that aspect.

Maintenance is also a great key aspects, it's an economical sink, and it can disrupt economy pretty bad, for example if you have a demand and supply price equilibrium below a maintenance level of both party, you are in big trouble.

Also I don't believe the alternative to money is barter, barter economy isn't much seen in practice even in oldest society, I mean as a social organization, what you see is hospitality/solidarity, ie an extension of the familial domain. From that lense we can say that money is an abstraction of thrust, you don't have to be part of group/family or show thrust to distribute good. Barter was just an example that got overgeneralized from the original text.

You can also binge watch that
https://www.youtube.com/user/ACDCLeadership/playlists

 

I'm incorporating a bit of the same thing. At a minimum, there will be events the player can read about that drive changes in trading. As always I just start coding the simplest thing I can think of and I will see where I end up.

 

There's a lot to unpack here. But I want to explain a point.

When you have a currency that is backed by a commodity, every transaction is a kind of barter. The coin or bill that you are exchanging is a placeholder for the commodity you're trading. You are still bartering goods, you're just using an abstract representation of the commodity you can redeem the currency for.

If people believe that there is a disconnect between the commodity and the coin, they can redeem one for the other at the rates set by the issuer (essentially a form of arbitrage). This did happen historically, and it also contributed to governments collapsing and the like. Many believe that this disconnect was a major cause of the great depression more recently.

If money is a proxy for a commodity, then all exchanges are barter only with a proxy. It isn't until we divorce currency from a backing commodity that exchanges become completely untethered to barter. This is a fairly recent invention, only happening in the US in the 1970s. Untethering currency from a backing commodity is a very, very modern invention.

 

So what's your question?

 

I think its mostly solved already. The missing part was backing the currency with a commodity.

That's by far the simplest way to really do full price discovery. Everything else needs hardcoded values as seeds, or weird contortions.

Price of swords (in grain backed currency) is

(soldiers/blacksmiths) / (population/farms)

. You could use bid/ask system or curve to figure out the exact point - but fundamentally the price is driven off that relationship.

Hardcoded system, you are setting the exchange rate between swords and grain in the base price (a sword is 10g and grain is 2g, then you exchange at one sword for five grain).

Not saying hardcoding is a horrible way to do it, but if you want to have working price discovery, you should really have a market for money - and the easiest way to have a market for money is to use an existing market for a commodity that exists in your world.

 

Here's another resource I found today that looks useful: Zero-Intelligence Trading in Markets. It shows that even dumb agents that set their bid/ask prices randomly turn out to pretty quickly settle on an efficient market. And includes a simulation you can download, play with, and hack on the code of, too!

 

Hey, that was a really cool video. Well explained and with most adorable blobs. Thanks for pointing it out!

 

I stopped reading halfway through the thread because to be honest, I think you are wasting valuable dev time on your game for something that adds very little fun and potentially adds hard to predict/debug behaviour that could frustrate players. Imho you're 100% better off just picking hardcoded start values that you can predict and then multiply them by some curves that vary over time (sine curves or similar, animation curves are great for manual control). Some of which follow seasons, some of which are scaled arbitrarily on the time axis to create a more varied state of economy. Then maybe pick two items per city that are randomly 10 to 20% higher and two that are 10 to 20% lower in price than elsewhere, to create viable trading opportunities. I think these kinds of variations and gameplay choices are what you should think about instead of making it "realistic" and actually modeling anything complex in the background. As long as your random stuff works, players will come up with their own explanations. Like "wine is really expensive here, it must be a region famous for its good wine or other towns are importing from here because they don't have the means to produce it themselves". Or write more lore and quests, pretty much everything I can think of would be a better use of your dev time imho.

To answer one question though (that may already have been answered in the posts that I didn't read): I think in a medieval setting a solid "cost basis" for any good, is the amount of work hours it takes to produce, plus cost of material, plus cost of wearing down tools. That's why chainmail armor was very expensive. Check this post and replies, it has some example calculations for chainmail and links a list of historic medieval prices for some goods:
https://history.stackexchange.com/questions/18993/is-chain-mail-expensive

 

Maybe, maybe not. I have a background in finance so this stuff isn't quite as obscure to me as it is to some others. Also, I personally find stuff like inflation to be fascinating.

In terms of lore, I think that having something like currency backed by a commodity is something that could actually help with world building. Different factions could express their 'personality' by choosing different goods - like a no frills, traditionalist faction could use grain to back their currency, a militaristic faction could use salt, a fancy pants wealthy faction could use gold. This kind of detail can actually add a lot of immersion, while also adding some interesting mechanics to otherwise kind of boring trading.

I'm also definitely using taxes, which is another seemingly boring concept - but one that can add some really fun and interesting mechanics.

 

My barter explanation was meant to be illustrative, and it's arguable that we can overgeneralized like we overgeneralized conflicts in story, it's semantic, it's not very interesting to say the same thing in different way.

Let me try some thought

In an institutional sense: yes, money is institution after all.

But I'm going to argue that in the absolute: no.
IMHO, money work because of scarcity, but that scarcity must match the volume of transaction in the market, so the value of money fluctuate based on that volume, that's how "it work". That's why "untethered" money work. Also because example of currency have happen in society where there was no other backing than scarcity (like Cauri), also that's the idea behind Crypto money.

The problem that a backing commodity solves is basically thrust, or in another way "authoritative validation". The danger of untethered value is that the volume of currency can be manipulated and create ill effect on the market, backing commodity is a basically security measure, ie if I define money as an abstract distributed ledger (assuming an hospitality reading), it's equivalent to messing with the ledger, you can't create fake wealth out of nothing.

It's also highly contextual, if your backing commodity is gold (which in general don't have much a practical value aside from being scarce and pretty, it's a untethered currency in itself) and you have a speculative catastrophe like failed harvest in an isolate society that rely on it to survive, your backing commodity is worthless and you have an economic collapse. But if your backing commodity was grain, well people will survive to restore the market at a later point, as they can withdraw something essential. That's assuming there isn't any other society to trade in food to compensate the lack.

 

There is truth to this. The Cauri example is a really great one (I just googled). That shells were used in so many different places as currency (from africa to australia to america) is really interesting. These shells had no backing commodity, and were still used as currency.

Question, did cauri shells have intrinsic demand? Some articles described ceremonial uses, but lacked detail.

I remember reading about cigarettes being used as currency in POW camps in WWII, and in prisons, but these have intrinsic demand (people want to smoke them), did cauri shells?

In modern times, we think of gold as having little 'intrinsic value' we see it now as a 'store of value' - but originally there was demand - since gold was used in jewelry and ornaments. The use of gold was a symbol of status, and although it didn't have functional use, we all know people will pay huge amounts for status symbols. I would imagine that cauri was kind of similar in that they were used as jewelry, etc.

This may seem somewhat rambling, but the question is - does the currency have a demand outside of its use as currency? Up until fiat money, I would say that it did. But maybe I'm wrong, the cauri example could go either way.

 

It's mostly me trying to abstract the mechanism of money, I doubt you can find an exact real match, precisely because it's an abstraction.

I was curious about how money work, because I have a friend who is really into game like anno, and various economic simulation. Trying to abstract the system for generalization, money canceled itself automatically, instead I had labor (transformation), resources, consumption (sink) and territory (sources) as primitive, with the idea that infrastructure define economy (ie how all of that is linked together in an architecture, culture is infrastructure for example), so I had to worked hard to find why it's so central to reality, and the result is that money is infrastructure, it's a validation protocol to be precise.

 

What makes cauri/shell money interesting is that it wasn't an isolated incident - the fact that it was independently used in so many places really hints at something meaningful.

Anyway, this is all kind of a tangent -- but the key take away (for me) is that having a commodity backing the currency makes most of the calculations I need to do pretty simple. In practice, I can ignore 'price' completely and calculate trade by comparing commodity against commodity.

How much grain is wood worth?
Not what is the price of wood.

This is less abstract and easier to calculate, assuming the game has supply/demand of grain and wood modeled.

 

Create 1 base price variable.
Give items properties in the form of booleans and integers/floats.
Create a simple formula around the base price multiplied by your booleans/integers/floats.

As simple as it gets.

Example:
Base price = 1 silver.
Rarity = [grey = 0.1], [white = 0.5], [green = 1]
isTrash? = [true = 0.1], [false = 1]
isLuxury? = [true = 100], [false = 1]

Final price = (BasePrice + isLuxury) * Rarity * isTrash

Not that hard

 

Inflation is just an invention, not natural state. Is to make sure, you produce and sell new goods, so your economy won't collapse do to stagnation.

Transport Tycoon has fluctuation on price / demand. Rather simplistic, but also is based on how many resources is available in mines for example. Or how good/bad year/month of resource gathering it was. There was inflation as well. But I didn't feel it brought anything special to then gameplay. Uptake cost more, but income was grater as well. Selling old vehicles was already cheap % of real value. Nothing that would realm make difference.

In reality, inflation leads to the point, people can afford less over the time. And reacher, get reacher.

However, as already discussed in precious posts, I would look at demand and priorities functions in respect to available resources of raw resources (product of previous production chain). Then all weight based on base food type availability.

Given chainmail example, I think is really good here.
Having war -> demand on armour -> available production rate -> demand on iron/steel -> available production rate -> food demand -> available production rate.

And cost of goods will sky rocket high, if suddenly food production/storage is lower than consumption.

So, in conclusion, to me for best automated pricing setup, is knowing what is required for production specific goods, propagate through whole production chain down to food production, and apply additional factors for each supply step in chain.

Chain maker spending month making one armour, need be able to pay for raw resources, and make living for a minimum a month. That will be lowest price, that can be viable to business to exist. But demand for such business creation would be very low. For more, business would high likely get closed. That allow the competitor to increase the price. Unless also decide to close business.

So instead of fixed pricing per goods, you would need fixed base raw product + maintenance + minimum time to survive, till next product can be sold. However, each part can be affected by various factor. For example productivity time can be improved by upgrade. Price can be reduced by negotiations skills etc.

Now you should have fairly complex supply / demand chain.

Allow population to grow. Then you will have a demand. Stop growing / expanding and you risk go into stagnation.
War of course is one of the factors. Other can be epidemic. Etc.

And of course, trading factor. But I would only consider implementing such, not before economy mechanics is proved to be stable.

 

No, it's an emergent property of supply and demand

 

@neoshaman's video does an alright job explaining inflation, but I think it can be understood more simply like this:

Imagine our money is backed by grain. Every coin you have can be exchanged for 1 grain or you could go to the bank and trade 1 grain for 1 coin.

Now imagine that one year, everyone decides to be a farmer - and the weather is perfect. There's now tons and tons of grain. If you wanted to buy wood with your coins, they'd demand way more coins than they did last year.

In reverse, imagine that there is a major drought. The harvest is ruined, and grain is rare. If you wanted to buy wood with coin, it'd take fewer coins since grain is rare. Prices for everything go down.

Thats basic inflation and deflation. Prices fluctuate based on the supply and demand for the coins. It can get way more complicated than that, but that's the core idea.

 

And yet we have more oil access than ever, with more discoveries of new resources, oil dropped prices few years back, and prices for goods still at rocket high, with some marginal decrease in comparison. Like when oil suppose to be one of most stable, ever increasing commodity. Dong.

Yeah, sounds like "real none artificially pumped" economy. Cough.
I observed its behavior quite well past 10 years, plus previous 50 years.

And printing money, that is exactly point of artificial inflation.
Is not organic. Is controlled from the some top chair.
Starting from taking debt, which never normally suppose be allowed to be taken, as having no asset to backup debts.
In fact, country assets should be sold / taken over, to keep economical balance, rather drive inflation.

Crisis also is cyclic predictable behavior.

 

Wanted to comment on the FF thread but it's closed and this topic here fits well enough imho because it could be implemented too for @frosted's game:

@frosted @Billy4184 @TonyLi : I'm not sure if displaying the "cost basis" of your wares in the buy/sell menu actually adds to the game. Isn't keeping that part in your head or on a piece of paper the equivalent of "aiming your gun yourself" in a shooter? If you make that overly convenient I could see that making feel trading too trivial for players. Are there any games that display the cost basis? I'm not aware of any (and only skimmed the other thread), and usually there's a reason for stuff like that and in most cases it isn't "no one tried to implement it yet".

 

Just for reference Feedback Friday #88 - November 15-18, 2019

Unless you make game super casual for few hours at most, than it is fine.

But I allow quote myself.

Also, if you start adding event and other factors (war/pirates/accidents), game is getting beyond simple trading. Meaning, trading is not only the focus of the game.

In past few games I played, I wrote cities with prices of goods on paper. Tracking is not really fun, is not challenge either. Specially when prices constantly are changing.

Allow player to focus on events, and deduct, which city could be suitable for selling relevant goods. Not on calculus

Fun side, now try play such game in car/bus/train/ship/plane, with a paper next to you.

 

Iirc the game that @Billy4184 cited as inspiration is so hardcore that it has an export function for excel spreadsheets.

 

Yep, I think that is cool feature.
Specially for such people, who like do some spreadsheet stuff / automation.
I did myself few in past, but none for trading type games.

The only concern from my point would be. What that would leave us with, when eventually fully automated spreadsheet is done by someone / shared online to others. Wouldn't that kill potentially the idea of, I would call "aiming experience"? Mind I am not attempting trolling, I am genuinely asking

 

Sure, just like wikis and min/max guides do to some degree. Some people even like playing through games by pretty much mindlessly following along with a walkthrough, to each their own. I just would advise against making that level of help a default part of the GUI.

And I don't know how far the excel spreadsheet export stuff in X2 really goes, what you propose (full automation) likely isn't possible, but I don't know.

 

I think displaying the cost basis as a value does two things wrong (opposite things in fact). a) It calculates a value for you that you would otherwise have fun inferring from other information (too much) and b) it doesn't do actually do the work of converting that value into something you can immediately determine as 'good' or 'bad' (not enough). It would be far better to skip a) and render b) unnecessary.

The way the X games (at least X2) do this is to make the prices inversely proportional to amount of stock, and prices everywhere the same. So if you always buy at over 50% stock and always sell at under 50% stock, you know you're going to profit. You don't always need to track exactly how much, and if you are concerned about those details well, you have to put in the effort. So you can just waltz around trading successfully on pretty much a single rule.

I believe the X2 economy went into a bit of decline over time, whether that was intentional or not I don't know. But if you keep it stable that is a good way to make it very approachable imo.

PS I think I might have misunderstood the terminology slightly, but it still holds. When you follow that rule it doesn't matter what you bought it for exactly.

 

I recently played a game that tracked your cost basis (I think it was startrader frontiers, but it could be something else). It's a nice feature. I wouldn't read too much into it one way or the other.

For games that have XP progression, I do like giving xp bonus for positive trades (most recently I saw this in starsector), and that feature requires tracking cost basis in the background even if its not displayed to player.

Either way, I don't think its a major feature, but definitely a nice to have for people who enjoy these kinds of games. Again, I would compare this to displaying damage numbers, not an aim helper.