Why the inflation meter is wrong, and how to fix it.

Day 308, 12:42 Published in Sweden Sweden by Radsoc

The in-game inflation meter does not reflect the real in-game inflation rates. This article will explain one reason for why the inflation meter is unreliable, and how it can be fixed.

RER is an acronym for "Recommended Exchange Rates". It is based on the "Purchasing Power Parity" PPP, i.e. how much you can buy for your local currency.

Inflation in eRepublik, as shown by the inflation-meter, is most likely based on the change in RER (PPP) over a 7-day period, i.e. the rise of the price of all transactions on the market.

However, as many people have seen the inflation-meter shows crazy rates even though there virtually has been no change in prices during the past week. So what's wrong?

I've found one reason behind the error, which is that the inflation changes when you buy Q2 instead of Q1 of an item. This shouldn't happen as inflation shouldn't depend on what kind of quality you select.

My claim:
The inflation-meter rate depends on if you select Q1 or Q2 of an item. In other words: There are different increases to the RER (per unit) if you buy Q1 or Q2 of the same item type.

Proof draft:
0. Does selecting a Q2 instead of a Q1 increase RER more than if a Q1 was selected over a Q2?

0. T(Q=2)/2 > T(Q=1)/1

~ Proportionality sign
T Transaction price
Q Quality (Q=1,2,3)
S Skill (S>1)
P Productivity

1. RER formula ([a url=http://www.erepublik.com/article-101021.html]New RER Explained [/a]):


2. Productivity formula ([a url=http://wiki.erepublik.com/index.php/Formulas]eWiki[/a]):

P(Q) = (S-Q+1)*k1 where k1 is a constant.

3. General relationship between productivity and price:

T(Q) ~ 1/P(Q)

T(Q) = k2*1/P(Q) =
k2/k1 * 1/(S-Q+1) =

(k2 constant - assumes an equal average competition level for Q1 and Q2 goods separately)

Insert into 0.:
[k/(S-2+1)]/2 > [k/(S-1+1)]/1 =>
S > (S-1)*2 =>
S < 2

I.e. 0. is true if S < 2.

If the average worker S=2 the RER-formula provides a correct value for the inflation because its weighting with regard to quality compensates for productivity. If S < 2 selecting a Q2 instead of a Q1 will show as an increase of inflation in the meter(which it shouldn't). If S > 2 selecting Q1 instead of Q2 will increase inflation instead.

This means that the skill of the workers and different choices of qualities affect the value in the inflation-meter. The problem is the weightingfunction in the RER-formula. It doesn't balance the productivity formula correctly (only for S=2 in this case). The easiest solution would probably be to change the productivity formula and make it look like producing Qn qualities really require n times the effort compared to a Q1 product. Another solution could be to modify the RER formula and add the average skill/2 as a weight factor (in this case).