The Mirage 2.0: Perceived Value
Prices of consumer products have little to do with supply and demand anymore, they depend mostly on what people are willing to pay, not what commodities cost to produce, in relation to how many people want one. The story you have heard, about that one guy who bought a Wii for $300 and made $100 profit from reselling it, does not represent our economic normality. The whole story hinges on its premise of “can you believe there weren't enough consoles?” The absence of consumer good ubiquity and how one wily person used it to their advantage is the special event deserving mentioning; not the availability of products. Supply and demand is the easy to understand lie, which is covered up by a more complicated truth. You will certainly come across supply and demand from time to time, but trust me, it is a surefire sign to stay away from a market. At least, if you want to make money and I suppose that is the goal of those of you interacting with the GW2 economy. So stop flipping stacks of butter, copper and other materials and turn your eyes to higher profit margins.
Case and point the iPhone, a device infamously produced in China from parts and costs of labor adding up to roughly $200 (source: http://www.isuppli.com/Teardowns/News/p ... veals.aspx). Usually sold for more than three times the manufacturing price, the iPhone is as close to a money printing machine as you ever going to get as a company. Fanboys might argue the costs of software engineers, Apple stores and bandwidth of all things. But one look at the stock price of Apple, the $50 billion cash reserve they have these days and the designs for their new company HQ and you know all you need to know about Apple's profit margins. They are healthy, they are large, so in essence, you could be paying much less and Apple still would not have to fire a single overpaid iTunes programmers, or machine shop full of underpaid Chinese factory slaves. The iPhone is cheap to produce in any quantities and customers are willing to pay any price Apple asks. It is the poster child for an idealized way of how to earn money producing commodities. This is how you want to conduct business in GW2.
But where do you find such a thing in GW2? Could you say the Superior Rune of Divinity was Tyria's iPhone? Is attractiveness among consumers enough? The rune weighs in at 60 points on every attribute (420 in total) and 12% critical damage. At best, the competition will muster 150 points on one attribute, 8% critical damage and some gimmick. Taken on its own, the rune appears scary strong. However, in the grand scheme of total attribute points, the impact of running a divinity set over any other runeset is only about 2.1%-2.8% depending on whether you compare it to a runeset with critical hits (2.85%), or one without (2.1%). Those kind of numbers are never going to be the reason you fail even the toughest fractal. Meaning that technically you only need them in those very tight situations that any 'pro gamer' with a shred of pride will deny having ever encountered in their entire life. Much like the iPhone, demand is not the result of an actual necessity for the product, but rather a self-imposed desire to join a club whose members express their membership by wearing the insignia identifying them as part of a perceived elite. It cannot come as a surprise that vanity is the main force driving up the price of Superior Runes of Divinity on the customer side. Is this enough to make it GW2's iPhone though?
Because on the production side of divinity runes, there is no clear path to play the game and end up with a Superior Rune of Divinity. The only way of getting one is to get incredibly lucky on a drop, incredibly lucky after clearing a map, or incredibly enduring at the mystic forge. Zomorros is a harsh master, but he can be defeated with statistics. If you make your sample size large enough, you can pretty easily see at which rate you are going to get an upgrade. From masterwork to rare, from rare to superior, the chances differ. The chances for an upgrade even differ depending on the level an item has. The lower the item's level, the higher the chance for an up-conversion. Another factor is the input. Throw the very same item into forge and your chance for an upgrade is better. Not only that, but you can also control which item you get. Four random weapons will get you another random weapon, but four greatswords will always produce a greatsword. Four times the very same greatsword will produce am up-converted greatsword at a higher rate. The item you will get comes from a pool of potential up-conversions. Famously, you can up-convert exotic swords into either special skins, or precursors. But for each weapon you toss in, the target pool is different. Pools have a size of 2-8 items and which one gets 'awarded' by Zomorros is pretty much random. To succeed, you want to know which is the cheapest thing to toss into the forge in order to get a dice roll on the desired pool of results. You have to investigate which item has which result pool as your first step of getting anywhere with your production line.
The underlying systems are anything but random and allow you to calculate production costs. The Superior Rune of Divinity is exotic, so you need four rare runes. Lucky for you, no matter which rare rune you try to up-convert, the desired rune of divinity will be in the (bad since it is so big) pool of potential upgrades. You cannot toss four items from the same stack into the forge. However, you can split a stack and start tossing in the same rune four times that way; optimize price and chances. If you do score an up-conversion, there is a 50% chance you will get a random soulbound rune. You also have a 50% chance to get a rune you can sell. Bad news though, those runes sometimes have recipes and their price does not depend on your production costs, but on the costs of various lodestones. Their prices also depend on the amount of dungeon-farmers out there creating them, counter-balanced by the players buying them up for legendary weapons and runes. This means your 'junk' creations have a price you cannot influence to your advantage, hence you have to raise the price of the Superior Rune of Divinity all the more, in an effort to get your invested money back in this very complicated market situation. Chances are, you will not break even on this one, or at least subject yourself to extremely random dice rolls to get there. The pool of results is simply too large to be efficient anytime soon. There is also a scramble for the base materials of this method, meaning the more people compete for low priced runes, the higher those prices get and this type of economy is the last thing you want to compete in without having intimate knowledge of the inner working of Zomorros. Remember, you want to be Apple, you want to sell for an outrageous price at an ensured and very large profit margin. You do not want to enter a supply and demand chain and aim for 'break even +X'. That is for suckers. Feel free to poison the well for others though, by participating in these market with excess funds.
Which goes not to say earning money was impossible by using the mystic forge, it merely takes a lot of time and a great dedication to statistically analyze your conversions over a large sample size. It is not uncommon to spend 10 gold before you even know whether or not something has any chances to be profitable in the long term. For investigations into high level items, the price goes up even further. At some point, the very nature of the product you are selling shifts from produced commodity to risk insurance policy. Which is a problem for the GW2 economy. The road to turn from a trader into an insurance company starts like this. Imagine you simply play the game for a long time and you end up with 1000 rare items. This type of player is best off selling them, instead of tossing them into the mystic forge. Because of how Zomorros behaves, the wily player gone trader takes the money from those 1000 rare items and puts out an order for one item, but 1000 times. This step already creates value. The additional value of this procedure comes from converting a chance for a random precursor into a chance for a specific precursor. In economic terms, you added value to your random drops, by de-randomizing them in the Trading Post. From a strictly economic perspective, the trading post has made you richer, without you having a single copper coin more than before. The added value is in the optimization of the dice roll which comes next. As a player, you have moved up from player to trader. You not only add virtual value to your account by playing, but also by using trade. Persons who do not like fiddling with the trading post all the time, should go vote for a “de-randomized loot feature” right about now.
Up to this point, the Trading Post works spectacularly well. The former player (now trader) is left with 1000 rares, which should yield one precursor of his choice. Please don't nail me on this number of 1000 rares and the chance of 1:250 to create a precursor from a rare. Even if the real ratio is different, the argument which follows remains the same. If there is anything to complain about, it is the amount of your head banging against the loot wall and the endless micromanagement clicks required to de-randomize everything. Anyway, once you did all this, you should get your precursor and finally 'progress' one noticeable step further down the path of “legendaries are motivation” laid out by ArenaNet. But you are only guaranteed that precursor in the same way that a six sided die should roll at least one six, if you rolled the die six times.
For the player gone trader who barely plays enough to roll that six-sided die six times, this is not a chance he wants to take. Statistically speaking, this type of player is better off not rolling the dice. Rolling a six sided die six times in hopes of a six turning up, is the equivalent of taking a 67% chance of success. Out of all dice roll combinations you can get, only 33% will make you happy. If you roll the dice long enough, then sure, on average you will have rolled one six for every six times you rolled. But write down all the possible combinations from 1-1-1-1-1-1 to 6-6-6-6-6-6 (46656) and you will find only 67% (31031) of them are in your favor in the sense that you do not end up empty-handed. If you were to put all possible results into a fishbowl, then sure, your global average after pulling out all of them, would be equal to the true average. But if you can reach in there only once, you take the biggest risk possible. One revolver, two bullets, one round of Russian loot roulette.
If you therefore toss your average requirement of 1000 rares into Zomorros and roll the “250-sided die” 250 times, the same applies, assuming the precursor rate is still 1:250. But due to the math, your chances have deteriorated another 3%, down to a 36% chance of a bummer result. Fans of Excel use this formula in row B: =SUM((A4-1)/(A4))^(A4). If A1 is the amount of sides your die has, the formula spits out the chances of you missing a desired number after rolling the die for as often as he has sides. If you have barely enough resources to throw enough rares into the forge to get a precursor, then this is the risk you take. Please note how the risk does not really change that much, if ArenaNet tinkered with the precursor dropchance. It will be important later to remember: chances change, risk remains the same. Another thing worth mentioning is that even if you had twice the amount of rares required (2000), you are at a very real 13% chance of ending up empty handed. Which is the same chance the first person in a round of Russian roulette enjoys; be my guest.
The really rich players, who can buy thousands of rare items and are able to take their chances dozens of times, are the ones who should play this game. On average, they will be rewarded with a precursor for every 1000 rare items they toss in, while having the resources to survive a bad beat or two. Having a lot of money will ultimately protect you from bad beats, a luxury a player hoping to barely get together the average required amount of rares cannot ever hope to achieve. No matter the drop chance of the precursor, rich players also know that any person wanting to create a precursor takes that 33% risk, which can only be eliminated by rolling often enough. Since drops are totally random, the system as a whole is destined to create very unlucky players. You find their stories in the official forum by the dozen each week.
Due to the chance of ending up short by taking a risk, a player who only has money to do it once or twice will think really long and hard whether to try his luck or not. This is the moment where the perceived value of the precursor stops correlating with the average median of rares you need and starts getting closer to the average number of chances you are willing not to take. Where do you push your luck to? 36% failure rate? 13%? 5%? The more risk averse you are, the higher the price you are willing to pay to somebody else, instead of taking your money to the forge and get it over with.
Will you risk 200 gold worth of rares, or will you pay 260 gold on the trading post and get the precursor for sure? Did you read the post from the player burning 600g that way? As mentioned earlier, there is only 3% difference between six sided die being rolled six times and the 250 sided precursor die being rolled 250 times. So find a few dice and test your luck.
The very nature of the totally randomized system allows only the very rich players to produce at reliable costs and perceive precursors as cheaper than they are to the regular player looking at his chances. Meaning there is profit to be made. Statistically speaking, for you as a rich player, this is a situation with no risk and a high reward, so all you need is the money and of course a working knowledge of how many rares you actually need. People selling gold on eBay must be laughing all day having premium access to this stylish method of earning money without botting. Most players who want to buy a precursor are better off overspending, than taking their chances with Zomorros, because they can most likely not afford failing a few hundred dice rolls in a row. ArenaNet is willing to end (or severely impede) a player's journey towards a legendary on a dice roll beyond ArenaNet's control. Which is insane considering legendary weapons were supposed to serve as motivation. By being rich, GW2 allows you to hit the real average consistently. Your profit will be the money from players who are rather willing to overspend, than take their chances. As you can see from the formula, no matter where ArenaNet is pushing the dropchance, be it 1:50 or 1:150, the risk is pretty much the same; around 35% to be the sucker. Meaning the profit for insuring against the risk will be at least that number. Supply and demand can merely change your turnover rate without ever endangering your business of converting 1 gold into at least 1 gold and 30 silver.
This is by no means an eternal truth chiseled in stone. All it takes is one patch to take down the advantage of rich players when it comes to production cost consistency; and all other RNG complaints for that matter. The problem is not the average chance of getting a precursor a player has. The problem is the potential of bad luck which will be created in the process. A few player might remember the 1:50 chance the Super Adventure Box offered. Under these conditions, opening 100 chests and not getting a thing is as probable as opening seven chests and get something. Guess which player will feel cheated? Nobody has a problem with players getting lucky, we can keep that part. But players being extremely unlucky is something to get rid of.
At the same time, eliminating the worst forms of bad luck will be removing the business model of being able to sell risk insurance at a premium. Eliminating the 36% chance of bad luck requires only a tiny bit of stacking the deck with a trick called “Fake Luck”. Under the current system, rich and poor (poor meaning less than four digit piles of gold) players have a different perception on the value of the precursors, a perception which in turn becomes the basis for their economic exchange. This is definitely a lot more similar to the relationship Apple and their customers have. Problem being, if you play like a normal person your chances of entering the precursor game are as low as calling up Chinese factories and have them produce smartphones for your personal brand.
Off Topic Explanation: “Fake Luck”.
Fake luck is best created by tinkering with the die itself. We know that if we take a 250 sided die, we can easily roll it 500 times and never have “1” turn up as the result; “1” being your lucky precursor day. Imagine a 250 sided die being rolled once. It fails, you get nothing. Next time, instead of rolling the same 250 sided die, you roll a 249 sided die. Insane in reality, however, computer can do that with ease. Your chances just went up. If you fail again, the number of sides on the die get reduced by one again. Even the most unlucky person in the world will get “lucky” after 250 dice rolls. No way he will fail the roll on a one-sided die. The guy complaining about his 200 empty Super Adventure Box chests does not exist anymore. You will not read his post on the forum.
Now for step two. What happens if the die rolls the “1”. It could simply reset to 250, but doing so would effectively lower the average from 1:250 down to 1:125. This is why the game remembers the number of sides used in the successful dice roll, e.g. 145 sides and adds another 250. After getting the first precursor, the player can roll for his second one. But instead of starting at 250 again, he will now start with a die having 395 sides. From there, the process starts over.
The beauty of this method is that no matter how many dice rolls you take, you will never drop beneath the designed average. You will always be able to say, that you beat the odds a little bit, but you will never be able to say that you are haunted by bad luck. Because luck is no longer part of the equation. Since you can no longer fall behind the average, a rich player has no insurance to offer. We effectively dropped a nuclear bomb on his business idea, since players no longer need to get scared of missing dice rolls so often they take it to the forums.
The average chance over a large sample size is determined by the number of sides you add to the die in the event of a positive result. The maximum size of the initial bad beat you might endure is regulated by determining how many sides the initial die has. The initial number of sides to the die also determines the average chance on the first round. Imagine a Super Adventure Box with an 80 sided die in the beginning, adding 50 new sides whenever it triggers. You end up with pretty much the same amount of rare skins in the system and a lot let forum posts to moderate, a lot less angry customers. Forget RNG, this is modified RNG, fake luck.
Right now, a rich player can roll the “mystic forge dice” more often allowing him to hit averages more consistently, thereby transforming RNG dice rolls into money. If you can barely afford the chance to enter the lottery once and therefore rather choose to pay a premium, you effectively lose money by handing over your money’s worth of RNG dice rolls to a rich player. Not only do RNG dice rolls equate to money, but they are also transferred from poor to rich due to the risk attached. The RNG ends up not being an equalizer, but the source of money piling up on one side of the equation. This is not just a GW2 phenomenon, this also works with weather patterns and globally operating reinsurance companies. Which is why SwissRe can then go on to erect a space dildo in the center of London; player housing anyone?
There is also the potential of an economic vicious circle. A rich player can buy up whole sections of the trading post and reseed them at a profit without customers really being bothered by the price increase. A rich person can use gold to generate knowledge about the game's systems, which can then be used to make more money. A rich person can sell you risk management and earn enough money to affect the prices of the raw materials. The start of a vicious cycle wherein the same 35% risk amounts to more and more gold, since the more players pay for risk management, the more base prices go up, causing a bigger financial risk in the first place and more desire to buy risk management. Supply and demand in this instance do not bring prices down and regulate the market, they do the polar opposite causing prices to explode. By not documenting anything and by giving only the vaguest of hints, ArenaNet themselves have driven up the prices of all items surrounding Zomorros. Because the less a customer knows about the real manufacturing costs, the less they can tell, if they are overspending or not. Meaning they overspend more, meaning base prices get inflated more. This regularly happens with Zomorros, but never with any of the documented crafting recipes. Such is the power of information.
Take the regular crafting professions for example. The unwritten law of GW2 says that the raw materials are always worth more than the finished product. There are even sites, such as GW2Spidy, which do nothing else than to ensure those profit margins remain negative. A normal economy could not work this way, but the GW2 economy can for a very simple reason. Crafting is done for crafting's sake, not the sake of selling the finished product. Many players will perceive to have recovered their costs the moment the crafting XP is awarded, not when the final product is sold. This perception hurts the cost of the final product, it is the final nail that drives costs below 'break even + service charge'. There is also a small inflation problem. You cannot exclusively craft for your own consumption, because you will have to level your crafting profession to get the items you need, therefore you will create excess items. Oversupply does not result in price-pressure on raw materials. Because the price of raw materials is determined by whether or not you consider them a fair price to help you level your profession, not produce items for sale. This annihilates any chance to productively earn money by crafting. I will concede there being a few items with which to earn a little bit of money. But honestly, you are scraping the bottom of the barrel taking that side of the argument. We want to be Apple Inc., not they guys who flip butter, remember?
Still on my quest to “pull off an Apple” on a level I could afford, I went through all these motions and they have led me down a very unfortunate path. I really did find it. The secret items hidden away in the Trading Post. Why were input items so cheap? Why were large parts of Zomorro's Up-Conversion pool so expensive? In economic terms, for every 1 gold I tossed into the forge, I was getting back 1.75 gold on long term average, +/- 10% depending on my competition. The market size of supply was such that I could earn roughly 8 gold per day. Supply & demand played a role, but not in terms of the gross profit I made, but rather in terms of how many items I burned through. So I came home from work, picked up 200+ items from the trading post, tossed them into Zomorros, took the gold, logged out. It did not even take ten minutes per day and it earned me exponentially more gold than regular play had ever provided me with. Secret knowledge is by far the best thing you can have, if you want to make money.
To this day, I do not have the slightest idea why the finished product is that expensive. Believe me, I tried to find out, to see the value, to get the idea. I still only got conspiracies to offer. Not in a million years would I pay the price I am currently selling at. There was one thing though, which caused my supply to drop: ArenaNet. In weeks during which ArenaNet seemed particularly pleased with having bots removed from the game, the supply dried up to a degree. But for some reason, the price players pay for the up-converted items went up. Am I buying from cheaters and selling back to cheaters at the same time? Has Zomorros an underbelly of money laundering? Another thought which crossed my mind was player flux and economic stability. If the U.S suddenly lost 30% of its citizens, the economic impact would be tremendous. For obvious reasons, that does not happen, 30% will not just stand up and leave the economy. On the other hand, the very same thing happens in GW2 all the time. There is a constant turnover of players, there are activity spikes around patches and weekends. How do you prevent that from derailing the economy? One idea which struck my mind was that of “virtual players”. They do not exist, they are just ArenaNet controlled bots, trading all day to stabilize prizes. They do not need to cheat items into the game, they just juggle them in some ways to provide economic connective tissue between different tiers of items. Some bots simulate items flowing into the market, some simulate items being purchased. This might be close to tinfoil hat country, but there is the fact of me getting roughly 100 items of one (undisclosed) type each day, never any more, never any less, not on weekends, not on patchday. It is like a stabilizing pillar driven into the ground, which has the same size than the maximum amount of visibile items in your trading post pick up queue; weird. The same goes for the items I sold. No matter how dumb the prices were I made up, things got bought. I tried making masterwork items more expensive than rare items and they would still sell faster. I tried making gold items excessively expensive and they sold at the same rate. Without real information, the limits of things to find out by looking at it from the outside were at an end. Be it stupidity of players or mad hatter level of economy design, the day had come to cash out.
When I first started my crazy gold earning schemes, I figured Zomorros was the easiest way to earn the money for the asuran tier 3 cultural armor I set my eyes on. Everything else was just too well documented. Looking back, nothing could ever hope to be easier than what I did. But once I had the money, I lost interest in buying the “Tron” armor. I did not earn it the right way. This armor would not have been something which represented the fun I had playing the game. Instead it became this insight in how dysfunctional the GW2 economy can be and how it long since has started to serve only itself and not the players. Its powers to bring you closer to your goals are nothing compared to its powers of annihilating your ingame progress. This was even before I put on the tinfoil hat to make sense of what is still happening. I suppose I am one of the players who wants to earn their equipment by actually playing the game; silly me.
For quite a few players, this is probably the largest problem of the GW2 economy. There is no clear path to play the game and properly earn most of the stuff available. You get all this loot, but none of it ever matters to you. For every ecto you salvage that gets you closer to a sword, such as Visions of the Mists, you get piles of merchant trash, which you convert to silver, which you spend to drive up and maintain the costs of ectos. Loot is not reward, loot is work. You need to put effort into converting your loot into the stuff you actually want. 99% of all trading post prices are fueled by that endless conversion of drops, the direct results of a drop design which hardly ever gets you what you want.
At a superficial level, you could argue that all prices are therefore supply and demand. This would be true, if this was a third world country and prices are the result of living human beings having to decide how to spend money in such a way that they do not die. No, the GW2 prices are not the result of biological imperatives and at which price the local eco-system can supply them for a population of humans competing for access to those resources; third world water anyone? The GW2 prices are an expression of arbitrary desires, an entirely different thing. Players do not need berserker gear, they desire berserker gear, and hence the price of blood goes up. Items have the value we perceive there to be and not consuming items has no negative consequence. Which is worlds apart from a real supply-demand conundrum such as the oil price, or grain, or any substance of sustenance a civilization might require. Not consuming a commodity subject to supply & demand has really bad negative consequences. Which is why a third world inhabitant with no excess income will turn every penny twice to make sure he gets the most bang for his buck. It is the very reason some commodities are declared public goods and exempt from being subject to free market forces. By contrast, not consuming a good of desire leaves you perfectly fine. Because of this, you get products such as the iPhone, where you absolutely must be in a position to not need it at all, to be ready to overspend by that amount and actually buy it. Otherwise you walk away just fine. This is what you have to hammer in your head really hard to make it in the GW2 economy. Screw all the supply & demand theorems, go for desirability ratings, do not stop, if they seem to make no sense. Why were ectos ten times more expensive than Mystic Coins for a long time, although you can easily create ten times more ectos each day than you can Mystic Coins? Demand is only one factor, the real culprit here is desirability and only now are players waking up to the fact of Mystic Coins being rarer than ectos. Until the time, the desirability violently shifts away from them once more.
If everybody understood the GW2 economy perfectly, it would be a zero sum game with no winner, a mere loot conversion machine. For the more profitable parts, it does not even make sense to try and write a guide. The moment I shared my method, would be the moment in which it goes to hell in a handbasket and my guide would become void. Other profitable ventures, such as the precursor game, are locked off by the costs of entry to this market. The three core rules of the GW2 economy are that I either earn no money, or money at your expense, or money due to your risk aversion. I tried to perceive the value of all individual commodities inside GW2 and gain an advantage by guessing better than the next guy. But at the moment I realize the core rules of the GW2 economy, its biggest problem emerged. When trying to determine the value of the economy for the game, you can’t help but notice that there simply isn't any.