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Dev notices have really taken out the need for a journal, to some extent, but I did want to talk at some length about the economy and some of the changes that we're making.

Note that I'm not an economist, so anything here that is correct is as a result of discussions with Sagger-AT3, and anything that is incorrect is undoubtedly my fault. Also, to some extent I'm trying to get the main idea across, but with anything in economics there are all sorts of edge cases and caveats.

What Is Inflation?
Inflation is a general rise in the cost of goods; basically, the notion that you were able to buy more last year with 100g than this year. Note that inflation is different than appreciation, which is the tendency of an item to rise in price as it ages. From our point of view, the ideal situation is that a user can buy an item for 100g, sell it a year later, and come out ahead in real terms after adjusting for inflation.

Bad metaphor: One way to think of inflation is to think of gold as seed corn, and virtual items as birds. Throw more seed corn out there, and each bird is going to eat more (i.e., inflate). Throw more birds out there, and each bird gets less corn.

Updated: Apparently, a very confusing AND bad metaphor. Okay, the main point here is that inflation is actually controlled by two countervailing influences: adding gold to the gold supply is inflationary, while creating new virtual items in the world is deflationary. Note that anything user-to-user is either neutral or slightly deflationary.

Inflation and Gaia
The quick answer: We're trying to fix inflation because we want the user to feel like items are attainable on the marketplace. If prices are increasing faster than you can earn gold, then it becomes very discouraging.

The longer answer: actually, what we're really trying to fix is the balance between different features. BG and zOMG outshadow anything else in terms of earning potential -- which means that either a) you play BG or zOMG to earn gold for your items, or b) you don't, and you just watch the price of the item always be unattainable. With recent changes this ratio is better, and we're hoping to adjust it further still.

By adjusting the balance we're trying to make items on the marketplace attainable for people doing lots of different activities on Gaia.

Inflation and the Marketplace
The price of an item, ultimately, is influenced upward by a) the desirability of the item (i.e., cats tend to do well), b) the rarity of the item, and c) the amount of gold that people have available.

Desirability we have some control over, but really, our optimum course is to try and make the items as good possible. Rarity really all depends on how many users like and buy the item (and is therefore correlated with desirability).

Bringing down marketplace prices requires either marketplace manipulation (a la price caps, which we've said we won't do) or re-releases (which we've said we won't do) or... getting more virtual items out there to chase a decreasing gold supply. That's what we're working on.

Side note 1: many people hate the hoarders that put stuff on the marketplace for tens of millions, but really, that doesn't cause inflation. They'll either a) get someone to pay their price, in which case the item is actually worth it, and we deduct 2% of 10m from the gold supply, or b) it isn't worth it, in which case no harm is done.

Side note 2: the 2% marketplace tax, as hated as it is, is one of our most consistent, best performing gold sinks. If I ever get to the point where I don't have enough stress in my life, I'll propose raising it to 2.25%.

Inflation and Cash Shop
Also: Does Gaia Want To Reduce Gold Grants to Force People To Buy Gaia Cash?
There is some evidence that indicates that high inflation actually gives people a reason to buy. This is because cash is a non-inflated currency buying into an inflating gold pool. Nonetheless, it would be better for gameplay to balance everything out, so that's what we're doing.

Also: But Isn't Cash Shop The Cause of Inflation?
Cash Shop is actually a strong deflationary influence; if we didn't have Cash Shop then our problems would be substantially worse. Cash Shop introduces new virtual items into the system, so you have the same amount of gold chasing more items, leading to overall deflation.

Also: But RIGs Are The Cause of Inflation
Usually the focus here is sellback values for the fail items. However, consider the life cycle of a RIG:

- user exchanges RIG for a random item - deflationary
- user keeps - deflationary
- user sells on marketplace - deflationary
- user 2 buys from user, then sells on marketplace - deflationary
- user gets fail item, sells on marketplace - deflationary
- user gets fail item, sells back - inflationary

When you add everything up (i.e., 2% tax from marketplace), it is equal to or more than the amount of gold generated from a sellback; and, most of the time, you're left with another virtual item. As a result, RIGs are deflationary.

Why Are You Picking on BG / zOMG
Because, together, they represented 80-90% of the total gold generation in Gaia.

Why Pick On BG?
It turned out that 30-35% of the gold being generated by BG was botted gold. Botted gold is pretty harmful in a number of ways; it takes a lot of time from our staff to go after and clean up bots, and it impacts the community when someone has to have a trading pass revoked because they were involved in transactions with botted gold.

So, given a choice between botted gold and non-botted gold, we usually try to resolve botted gold first, because a) it impacts the community negatively, and b) you fix it, see the effects, and then decide if you need to fix things further.

(There are still issues with BG, with the main one being immortal fish -- but leave that for another journal entry, we're still doing an analysis on it).

Why Pick on zOMG?
So, the issue with zOMG was different. It wasn't a botting problem, but an issue with entirely too much gold being given out. So, what we did today was this:

- take everyone that played the game yesterday (about 12k people)
- sort them
- look at how much the top 1% made
- made that the cutoff, and reduce gold payouts once you hit cutoff

Picking 1% was perhaps a little arbitrary, but it makes a real difference. The top 1% made 25-30% of the total gold created by zOMG yesterday. We'll be looking at the results over the weekend and then decide how to proceed.

Why Pick On *my favorite feature*
Ah, this is the fun thing about trying to fix gold granting: everyone believes that you should try to fix inflation, but they don't want you to touch their feature. A frequent refrain: "You can't reduce the amount of gold I get, because I need it to afford the massive prices." The very reason those items are so expensive is because we're giving out so much gold.

So What Next?
We'll be doing changes constantly to grants to try and get them adjusted to where we want them. Goldsinks are unequivocally good, so we're going to do more of those. Don't expect prices to immediately drop -- it takes a while for economic changes to propagate -- but making these changes will make for a more stable economy. While your gold earnings may decrease, you'll still be able to buy the items you want with approximately the same amount of effort; however, you'll be able to reasonably earn it in many different ways, instead of just limiting you to just two flash games.

This was a super high level view. Questions below -- you ask 'em, I'll answer 'em.