by Doc – Owner, Founder, Bachelor’s in Economics, Finance, and Animal Crossing
Animal Crossing: New Horizons is the most interesting case of video game economics that I’ve ever seen, bar none. That’s saying something – I’ve studied Old School Runescape’s forex market, Minecraft’s survival-based economies on 2B2T, and even Club Penguin’s social status hierarchy. Animal Crossing takes home the prize in the “good Lord this is an amazing economic situation” category.
Here are several facets of Animal Crossing: New Horizons’ economic structure that are insanely interesting to someone interested in video games, economics, markets, or all three.
Note for the unfamiliar: Bells are the main currency of Animal Crossing. The Able Sisters, Nooklings and Nook Stop are the three most important shops in the game, and most items enter the game economy from those shops. Nookazon is a player-to-player marketplace intended to mimic Amazon, but for Animal Crossing. That’s where the screenshots and prices are from.
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Video game economics provide a stellar corner case of human behavior that wouldn’t otherwise exist in economics: duplication glitches. Because items can be mass-generated at will with duplication glitches, the secondhand value of an item may be partially or totally unrelated to the intended value of the item. Here’s a great example:
This is the fabled Royal Crown, which has been one of the most valuable items in the Animal Crossing series since its introduction in Wild World. In the in-game Able Sisters shop, you can purchase the Royal Crown for 1,200,000 Bells (provided you’re rebuying the item through the Nook Stop or are buying it from the Able Sisters in-game shop). You can then resell the Royal Crown to the Nooklings for 300,000 Bells.
In theory, in a secondhand market this should be a fairly straightforward situation. We should expect that the Royal Crown would sell in secondhand markets for roughly greater than or equal to 1,200,000 Bells, because no Royal Crowns have ever entered the game for less than that cost. There’s nowhere else to buy them except from Able Sisters or Nook Stop, or another player.
However, when New Horizons launched, there was an infamous duplication glitch that was very easy to perform, and the Royal Crown was one of the most prized items for duplication. Players could produce 40 Royal Crowns in a matter of minutes without much difficulty, and then resell them to the Nooklings for 300,000 Bells each.
Not all players sold their Royal Crowns. Some, like myself, kept large stashes of them to access once the glitch was patched. This is reflected in the secondhand price of the Royal Crown: 500,000 Bells, as seen above. (We’ll ignore the Nook Mile Ticket cost, as that’s only for player-to-player trades.). There is clearly a surplus of Royal Crowns in the game economy, so much so that it violates both expectations set previously. After all, duplication is a zero-cost effort, especially at the speed of the original duplication glitch.
This means that many Royal Crowns did in fact enter the game for less than 1,200,000 Bells, so we can’t expect that the secondhand price would be roughly greater than or equal to 1,200,000 Bells. Despite this, we can expect that the price would never fall below 300,000 Bells, because no trader would go through the long process of conducting a trade when they could get more for a Royal Crown from the in-game shop.
In short, duplication glitches crash the price of goods that you would otherwise expect to be very valuable, because they overextend the supply beyond all demand.
Two Currencies, Many Exchange Rates
Animal Crossing: New Horizons functions off of two in-game currencies: Bells, and “Nook Miles”. Bells serve a function just as any other currency would – they’re portable, exchangeable, and are the common circulation between Animal Crossing towns. Consider them a stand-in for whichever currency you prefer.
Nook Miles are a far more restricted currency – they can’t be directly exchanged from player to player, aren’t common circulation between towns, and are only redeemable through the Nook Stop for certain privileges and in-game items. Nook Miles are far more limited in supply than Bells, as only a certain amount are easily obtainable each calendar day, with further Nook Mile acquisition becoming more difficult as more Nook Miles are acquired. In practice, this difficulty puts a 24-hour cap on how many Nook Miles can be introduced into the game.
Secondhand traders discovered that a specific item can be purchased only through Nook Miles, and that said item has a variety of other uses in the Animal Crossing economy: “Nook Mile Tickets”, or NMT. NMT cost 2,000 Nook Miles, roughly a single day’s worth of Nook Miles, and can be used through the in-game airport to visit other islands for resource excavation and villager hunting, which will be covered in a later section. It should be noted that players don’t typically use the in-game function of NMT, and that island visits don’t consume a lot of NMT.
NMT constitute the market’s currency of Animal Crossing: New Horizons. While the game’s NPCs trade with Bells, players often use NMT as a convenient stand-in for Bells. Fortunately, NMT were not commonly duplicated either, so their value is largely pinned to their in-game function and not augmented by previous supply surpluses.
When applied to secondhand trade markets, this begins to create a very large opportunity for arbitrage. Compare the estimated Bells/NMT ratio for these items.
The Robot Hero is roughly 33,000 Bells/NMT, while the Crown is 60,000 Bells/NMT and the Raymond villager is 25,000 Bells/NMT. These are all highly sought-after items: the Crown is a very expensive item, Raymond is the most demanded villager in the entire game, and the Robot Hero is one of the most difficult furniture items to produce.
There is, effectively, no consistent exchange rate between Bells and NMT, and very few items even have the same rate as another. It’s not uncommon to see a 500,000 Bell villager list for 20 NMT at the same time that a 575,000 Bell villager also lists for 20 NMT. This extreme price misallocation is the case for two reasons:
- Supply for an item is typically only produced at a given time by a few individuals, providing a single individual with the ability to temporarily set the market price (until their listing is fulfilled, at least). However, there’s enough players that at any point in time, it’s likely at least one person will be supplying an item.
- Bells and NMT are constantly inflating, and doing so at different rates.
Which leads us to…
Inflation and Forex
“Money sink” means that a mechanic removes currency from the game. “Money faucet” means that a mechanic introduces currency into the game.
If you’re familiar with Animal Crossing, you should know that the demand for Bells in the game largely disappears after a few weeks to a few months because the player finally pays off the large home loan that players begin the game with. This loan is the largest money sink in the game by a long shot, and it’s only temporary.
Other money sinks do exist to remove Bells from the game, such as building infrastructure projects, purchasing items from the game’s stores and paying for new villagers to move to the island. However, while these sinks are infinitely repeatable, most players will only use them a few times before fulfilling their purposes.
In contrast, the money faucet of the game – the Nooklings – never, ever stops. The Nooklings will purchase any item in the game no matter how useful or useless and have an infinite reserve of money to spend. This creates a situation where currency continues to be pumped into the economy at exceedingly fast rates while it is only temporarily able to be pumped out of the economy. While the prices of items in Animal Crossing never changes, the spending ability of the player continues to increase.
This has downright silly effects in the secondhand market. Compare the price for a loom when purchased from the Nooklings and the price of an identical item when purchased from another player.
There’s no real-world reason that a player should pay 50,000 Bells for a loom from another user when they could come across it by chance in the Nooklings shop for 13,000 Bells. However, this is not the real world, and traders know good and well that they can charge 50,000 Bells for a loom because there’s simply that much spare cash flowing around in the economy.
This just doesn’t impact Bells, either – NMT are steadily inflating as well. Each day, enough Nook Miles enters players’ pockets to purchase at least one NMT, sometimes more. If one NMT per person is being added into the game, and the only way to remove those NMT doesn’t get used often, then NMT steadily inflates, but at a slower rate than Bells.
The difference between Bells’ inflation rate and NMT’s inflation rate is that there is no functional cap for the rate at which Bells inflate, while there is a cap for the rate at which NMT inflates. Hypothetically, we should see an exchange rate arise where NMT becomes the stronger currency relative to Bells over time… but for some reason, that’s not proving to be the case.
Instead, NMT are generally considered to be getting weaker relative to Bells. At the game’s launch, most players would trade one NMT for around 99,000 Bells, or one “99k” Bell bag, the easiest denomination of Bells to carry. However, we can see that (while the exchange rate is still wildly case-specific as seen above) it’s currently around 20,000-30,000 Bells in most transactions. Why is NMT becoming a weaker currency when Bells are being introduced to the game so much faster?
The Stock Market With No Losers
The single largest and most consistent source of Bells in the game is the “Stalk Market”. Each Sunday morning, players have the option to purchase turnips from an NPC for 90-110 Bells each. Then, during the week, the Nooklings will purchase the turnips from the player for up to 12 different prices, with the price changing at noon each day and at midnight. The turnips become worthless at midnight the next Sunday, so players only have one week to sell the turnips before their investment becomes worthless.
Players immediately found a way to make consistent returns without ever taking a risk – visiting other player’s towns and selling their turnips for a different price. See, the Nooklings will occasionally have “price spikes” where they’ll purchase the turnips for 200%-600% the price they sold for on Sunday. This has the result of a player being able to buy turnips for 100 Bells on Sunday, and reselling them for 600 Bells on Wednesday.
Statistically speaking, in a group of 100 players, there’s almost a 100% chance that at least one person will have a price spike at any given time. This means that players only need to join a turnip group with enough people to ensure that they can make ridiculous returns on their investment.
By the numbers, this creates ridiculous amounts of Bells with which to inflate the market. If a player purchases 1,000 turnips and spends 100,000 Bells, and can turn around to sell them for 200,000-600,000 Bells every week, that’s an influx of at least 100,000 Bells per person every week. Each person would, on average, introduce 5 Million Bells to the economy in a single year, not including all of the other transactions that introduce Bells to the game.
This is a game with 36 million units sold in its first fiscal year, on a console with an install base of 100 million players. While most of those players won’t be playing anymore, there’s still millions of people bringing in millions of Bells each week.
In Animal Crossing, villagers are NPCs that live in the player’s town and can interact with the player. Each town can have up to ten, and some villagers are rarer than others. The game distributes these randomly – if you’re opening a spot on your island for a villager, you don’t know if you’re getting the highly valuable Wolfgang or the very common Coach. With almost 400 villagers to choose from, it’s a system that’s largely dependent on luck…
…or finding some way to purchase the villager you want from somebody else. When a villager is in a person’s town and decides to leave, they’ll have one day where another player can visit that person’s town, talk to the villager, and convince the villager to move to the player’s town. So if Wolfgang is leaving Player X’s town, Player Y can visit and have Wolfgang move to Player Y’s town instead.
People pay for this. They pay a lot. The most valuable “items” in Animal Crossing are villager NPCs, and it makes sense – they can’t be duplicated, they can’t be created or purchased from the Nooklings (sort of; I’ll explain), and it takes a real commitment to make a villager want to leave your island and go to someone else’s. For some villagers, it takes several days of constant bullying and neglect to make the villager ready to move out of your town (read: sell).
Never mind the ethical questions of selling NPCs to each other – how do the economics of villager trading work?
Well, unlike the other forms of trade that exist, there’s no actual production of goods in this field. No Bells are produced, no turnips are sold, and no items are consumed or destroyed. Instead, the item in question is the villager. There’s only a few ways to “create” a villager to sell:
- The game randomly chooses the villager when the player sets down an open house plot. This plot costs a token fee of 10,000 Bells.
- When using NMT’s in-game function, a villager can sometimes appear on the randomly-generated island. This villager can be convinced to move to the player’s town. This is the only way to “produce” a villager that requires a significant amount of currency.
- If the campsite has been built, the game randomly chooses a villager to settle in the campsite every few days, and this villager can also be convinced to move to the player’s town.
- If the campsite has been built, players can scan an amiibo and produce almost any villager in the game at the campsite. Most villagers can be produced this way – however, some villagers, notably Raymond, do not yet have amiibo cards for them and thus are only randomly generated.
Villagers also come in “gifting levels”. Players can give villagers items, and the villagers will modify their attire and house to include those items. While each villager starts with the same house, (i.e. every Bob starts with the same Bob house) they can slowly change over time. Players sometimes prefer villagers that have their original houses, so they must sort by “heavily gifted”, “lightly gifted”, or “ungifted”. When villagers are introduced to the game through the above methods, they always start as ungifted.
In addition to having “gifting levels”, villagers that are more popular among the fanbase tend to sell for more. Wolfgang and Raymond are two very notable examples – Wolfgang is a fan favorite and has been for years, appearing in many works of fan art. Raymond is new to New Horizons, and his heterochromia made him immediately popular with fans. Both of these villagers sell for a pretty large sum of money relative to other villagers.
However, Raymond is more expensive than Wolfgang, for one reason. Wolfgang can be generated with a Wolfgang amiibo card or equivalent technology, and Raymond cannot. Thus, the supply of Raymonds is truly dependent on the randomness of the game, while Wolfgangs can reliably be produced so long as one has the right items in the real world.
The factors that determine a villager’s worth are:
- Popularity in the fanbase
- Ability to produce villager through amiibo
- Gifting level
- Individual’s preferences
It’s quite an interesting market, let alone unethical.
Animal Crossing: New Horizon’s economy is an absolute trip for anyone wanting to learn how economics works. It seemingly obeys the laws of economics in some areas and totally violates them in others.
As the economy moves forward, players will have a few issues to overcome – namely, inflation. The only real way to remove currency from the game is for players to stop playing, and that’s no solution for an economy that relies on gameplay.
I predict that players will start to seek other currencies, and I have a few recommendations for what could replace NMT.
- Dream Bell Tickets (only one can be produced per day regardless of time travel, and they can’t be stockpiled like Nook Miles)
- Golden Nuggets/Golden Tools (because Golden Tools still break, they largely exist as a matter of convenience, not of achievement. Since supply is limited to the number of Golden Nuggets, players can’t produce them en masse as easily as NMT)
- Bartering (while not a great solution, if currencies fail, then item-for-item trade becomes the only option)
I look forward to seeing what the New Horizons economy becomes.