Saturday, May 19, 2012


One of my first economics lessons came in the summer of 2000 when I was playing Diablo II.

Here's the basic idea: Your character wears armor and uses magical weapons to slay demons. Those demons drop gold coins and equipment, which you can use or sell. As you slay more demons, you get better equipment and your character becomes more powerful, allowing you to slay bigger demons, who drop larger amounts of gold and better equipment.

I wanted to gather as much gold as I could, so I would walk from town and slay everything in my path. I picked up every single item they dropped to sell in town. When my bag was full, I would walk back.

There were also one-use items that would create a portal directly from town to save me the walk. I never used them. Instead, I sold them for a tiny profit in town. There were also single-use identifying scrolls to determine the worth of magical items, but I never used either. I took all the magic items back to town where they could be identified for free, and sold the cheap scrolls.

All of this seemed like a good idea, I was stripping every piece of wealth I could from the countryside. How could there be a smarter path to wealth?

Then one evening my friend Patrick down the street and I started some fresh characters together and I quickly realized the fatal flaw in my strategy by watching him. Time was also a resource, and I was wasting it.

All that time I wasted walked back to town instead of using a cheap portal was time I wasn't slaying demons. It would be like a pizza delivery guy thinking he's saving money by walking everywhere.

Patrick was field-identifying magical equipment, and if they weren't worth enough, he would dump them right there. This seemed like sacrilege to me, as all of these items could be sold in town for a profit. He was also using precious inventory space for the identifying scrolls.

But again, time was a resource, and we were out there slaughtering demons when I would have been prancing around town. I didn't say anything for fear of looking like a fool and followed along.

When we finished the first level our gold supplies were indeed lower than my first playthrough, but our progress was considerably quicker. Since we were leveling up faster, we were able to fight bigger demons who dropped better stuff much sooner. Our gold earned per minute was actually improved by leaving resources behind.

I didn't know it at the time, but this was similar to the concept of diminishing returns. Diablo III came out this week and has a full-fledged economy. Stay tuned for more real-world economic lessons from the game.

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