An Economy Of Hats.

This is a story about a hat.

Thanks to its focus on hats and a real money shop in which you can buy said hats, Team Fortress 2 tends to be the butt of a lot of jokes about being the world’s premier hat simulator. With 235 hats currently in the game along with many, many variations on the theme – Strange hats, Unusual hats, Vintage hats, paintable hats – these jokes do have a seed of truth in them, for all that Valve (presumably) use the proceeds from hat sales to create massive, regular and entirely free injections of new content for the game, which itself went free-to-play a couple of years back. A lot of people dismiss TF2’s hats  as one of those weird internet phenomena that only obsessives really care about. This would be a mistake, but it’s true that a casual player of the game like myself doesn’t usually give hat trading any significant thought. However, a short while ago I happened to have my attention directed towards the hat economy purely by chance, and what I discovered absolutely fascinated me.

It all started a few months back when I got an unsolicited friend request on Steam from a user who appeared to be a complete stranger to me. We had no friends in common, no groups in common, he had no name that I recognised – there was absolutely nothing to link us in any way. I declined the request, not really wanting to deal with the sort of person who would just send out random invites to strangers, but I was nevertheless puzzled at just what would drive someone to do this. Steam isn’t like other social media; there’s no e-cred for having a zillion friends on there, and I hadn’t put enough time into TF2 to think anyone would be interested in the paltry selection of items visible in my Steam inventory.

That is, until an actual real friend of mine also got a friend request from the same user a few minutes later. Being a bit more outgoing than I am (also he may have been drunk at the time) he decided to engage the guy in conversation to find out why on earth he was pestering multiple people like this. And the answer he got back was fairly surprising: he was a TF2 trader, and he wanted Bill’s hat.

This was what first piqued my interest: that despite not putting all that much time into TF2, and despite having a rather threadbare inventory, I could still possess an item valuable enough to make somebody pelt the owners of it with random friend requests in the hopes of persuading them to part with it. That’s a lot of effort to go to for a hat.  Previously I’d thought that TF2 trading took place amongst a relatively small clique of players – just the people who actively offered and responded to trade requests in server chat, as well as those who used specialist trading websites to seek out specific items – but this was the first evidence I’d had that it might go a little bit deeper. That the hats in TF2 might have some kind of intrinsic worth that went beyond their aesthetic quality as vanity items or their completionist value as part of a collection.

Why is Bill’s hat in particular so valuable? What gives it its value? What would drive somebody to do the internet equivalent of cold-calling just so that they could acquire more Bill’s hats? To answer this I had to delve into many of the specifics of the way TF2 trading works, the TF2 item system, and the curious economy that has materialised around both.

As a very quick primer, items in TF2 can be acquired by picking them up from “drops” during play (actually a semi-random timed reward system), by crafting them through the game’s crafting system, by buying them from the in-game shop, by trading with another player for them, or by getting them as a promotional bonus for buying/pre-ordering some other game on Steam. However, not all items can be acquired through all methods. Some items cannot be traded for. Some cannot be crafted. Some do not drop during play. Certain one-off promotional items have effectively had their supply cut off, leaving a fixed number of those items in the system which will never increase or decrease. These different factors can come together to make some items very hard to get, and it’s the difficulty in acquiring the items which gives them their inherent value, as you’d expect. After all, rarer is always more valuable. Past this, though, the TF2 economy behaves in some very strange and unexpected ways.

One of the keys to the TF2 economy is, well, keys. Keys are the item underpinning nearly all of the transactions that go on in TF2’s trading backend. Keys have a fixed value since they can be bought in the in-game shop for £2. You’re supposed to use them to unlock the many, many crates that you’ll pick up as a simple consequence of playing the game for an hour or two; doing this will consume the key and reward you with a random item from a set list determined by the particular crate you’re trying to unlock. However, since they’re a tradable item which has this fixed value attached to them, the key has also become the de facto currency of TF2. You can use keys to pay for many of the more valuable items being offered up for trade on websites such as this one, and the fact that the key is such an ubiquitous medium of exchange means that it allows direct comparisons between the values of two seemingly unconnected items. The key means that TF2’s economy – which started out as a pure barter economy, remember – actually has a common monetary unit.

A second, possibly even more important element of TF2’s economy are the one-off promotional items I mentioned above. These are items which were awarded to players for participating in a time-limited event and which can no longer be acquired by any method. As a highly relevant example, 107,147 TF2 players preordered Left 4 Dead 2 on Steam prior to its release. This means 107,147 TF2 players received a Bill’s hat as a reward for preordering. Three years after L4D2’s release there are still 107,147 Bill’s hats in the game. However, because Bill’s hats cannot be created or destroyed by any means, and because they can be traded to other players, Bill’s hats have a much higher key value than other hats that are far rarer numerically but which can be created through crafting or picked up through drops. This constant expansion of the supply for such hats not only dilutes their value as they become more common, but the potential for the quantities of these hats to eventually outstrip the number of Bill’s hats in the game has been noted by the trading community and factored into their key value.

Let’s look at some numbers. There are 107,147 Bill’s hats in circulation. A Bill’s hat can currently be had for as little as eight keys, although a more common price is nine keys, or eight keys plus some refined metal (a key is currently worth 2.66 refined metal and so refined metal is used as small change. Crazy, huh?) Painted versions of Bill’s hats increase the price by one or two keys since paint has to be bought in the in-game shop and it costs a fair bit of real money. By comparison there are only 6,904 Warsworn helmets in the game, but because they are craftable and the supply is increasing the going price for a Warsworn is just three refined metal, or 1.12 keys.

It doesn’t stop there, either. Other promotional items with fixed supplies carry even higher premiums, to the point where many traders will no longer directly accept keys in exchange for them even though keys determine their value (as an analogue, imagine trying to pay for your weekly grocery shopping with a huge bucket of small change). You remember the 2010 Steam Christmas sale with the seemingly-usless coal? And that seven lumps of coal could be traded in for a special TF2 hat, the BMOC? You‘ll probably wish you’d done that now because BMOCs are worth 16-18 keys. The Earbuds — a promotional reward for TF2 players who participated in the game’s launch on Mac — are worth 25-27 keys, or three Bill’s hats. And finally there’s Max’s Severed Head, released to tie in with one of Telltale’s awful desecrations of a beloved Lucasarts property and which goes for a staggering 52 keys. Or two Earbuds. Or four BMOCs.

Now, that the supply of these items is fixed is probably not responsible for their full value in the eyes of TF2 traders. I suspect that a large part of their worth is based on the simple fact that the community as a whole perceives them as valuable, desirable items. In other words, much like modern coinage, they are valuable simply because society agrees that they are an acceptable medium for representing the value of goods and labour. However, if there was no limit on the supply of these items they would be useless in such a role. With keys the limit is provided by the real-money requirement to acquire a key in the first place as well as the fact that keys are constantly flowing out of the system as they are used to unlock crates. With these promotional items, the limit is an actual physical one on the number of items available.

Intriguingly, though, the supply of these promotional items in circulation is actually decreasing. Once people manage to trade for a Bill’s hat or a set of Earbuds they prove strangely reluctant to let it go, and so a significant quantity of traded items effectively form part of a player’s savings. Here, though, there’s a definite disconnect between the real-life economy and the virtual economy. If you save real money it will likely be stored in a bank account somewhere, but it won’t just be sitting there; the bank should, in theory, be taking your money and putting back to work in the system on their behalf while paying you a healthy rate of interest in exchange. In TF2, players hoarding items like this is more akin to stuffing your savings into a sock which you keep under your bed. It’s not exactly helpful to the economy as a whole, and the gradual decrease in supply is creating a slow upward pressure on the price of these promotional items.

One thing I was concerned about when writing this piece was that it was all very well and good trawling trading sites for the approximate current prices of TF2 items, but that all this would give me was a snapshot of the current state of the economy. It would tell me nothing about what it was like six months ago, or a year ago, or three years ago. I had no clue how the economy had changed over time. To try and rectify this I got Jim to put me in touch with Losty, a TF2 player who is fairly heavily involved in item trading. Losty told me that Earbuds have increased in price by 50% since they were introduced, while the Christmas BMOC hats were also steadily creeping up in terms of key cost. Interestingly I got the impression that Bill’s hats had suffered a somewhat smaller relative price increase compared to the other limited edition items, and I think that might be because the larger quantity of Bill’s hats in the system — when compared with Earbuds  (44,532) and BMOCs (12,453) – is cushioning the decrease in supply.

(It’s also probably worth taking a brief look at the number of keys in circulation. There’s a staggering 280,192 of them sitting in people’s inventories, but only 7,208 — or 2.6% — of those have been acquired through trading, suggesting the number of keys actually circulating through the system is comparatively small. It’s certainly a much lower percentage than the 18.6% of Bill’s hats that have been acquired through trading, and would seem to indicate that keys lend their fixed value to other items without often being involved in trades themselves. I interpret it as TF2 traders either preferring not to get real money involved in the system all that much, or just spending it on other things such as paint. It’s not really a fair comparison because keys can be bought and used up while Bills hats are static, but the quantity of keys that are being traded is still rather smaller than I was expecting.)

Of course many of the hats that can be found up for trade can also be purchased in the in-game store for a fixed sum, effectively putting a cap on their value in terms of keys. Certainly there is no hat in the store (that I could find, anyway) with anywhere near the asking price of eighteen pounds a Bill’s hat would appear to demand in equivalent key value, and this is going to act to keep the key cost of many of the mundane hats down. This is why I used a comparison hat – the Warsworn helmet – with many of the same qualities as the Bill’s and which isn’t available for sale in the store, but which is craftable and thus has a supply that isn’t fixed.

Finally there’s the story of refined metal. Refined metal is acquired through a convoluted crafting system that basically requires 18 unwanted weapons in 9 matched pairs to create one refined metal. You’ll pick up maybe one or two weapons per hour of playing TF2 – less if you play constantly – and so crafting even one refined metal is a huge pain for a single player to do. This “labour” cost, for want of a better term, is part of what gives refined metal its value as small change in the TF2 economy. It has other uses besides  acting as money, as it constitutes a required ingredient of many of the higher-level crafting recipes in the game. In particular you can combine three refined metal to make a random hat, and this is interesting to me because most hats are apparently worth about 1.33 refined metal on the open market.  Again, there are probably a number of factors at work here – not least that a hat crafted by somebody else will likely have a “Crafted by PLAYER” in the item description which gives it that slightly-worn second hand quality, like a book with somebody else’s name written inside the cover – but it’s nevertheless a strong indicator that TF2 traders put a far higher emphasis on the potential use of an item over the end product. If you craft together those three metal you have a small chance of getting an awesome hat, and a much larger chance that you’ll get a crap hat that you’ll only be able to flog for less than half the cost of the materials required to make it. It does say to me that the random element of crafting hats also provides much of the value of the metal; that while the metal is unused, that small chance of getting an awesome hat is a tangible thing that has worth. It’s kind of like gambling in that regard.

The TF2 economy is a surprisingly robust entity that mirrors real-world economies in a number of interesting ways, but that’s not to say that it doesn’t have its silly side. Since keys carry an actual monetary value and the value of many other items in the game can be expressed in terms of keys, it’s possible to very crudely put a number on just how valuable your TF2 backpack actually is. Mine is apparently worth just 63 dollars (and I imagine most of that is locked up in Bill’s hat). This guy’s on the other hand is worth $26,000. That’s not to say that he has $26,000 of liquid assets floating around in there, of course; if he ever tries to liquidate his portfolio I very much hope he’s prepared to accept $26,000 worth of keys in lieu of anything that would actually be of any use in a post-TF2 world, because while the world does contain people willing to pay $1,500 for a hat there can’t be that many of them out there.

The one question I haven’t addressed here is the one I asked at the start of the post, and which has only become even more intriguing in light of what I’ve learned here: why do people spend so much of their free time trading for hats in an online FPS? I asked Losty what the appeal was for him, and his reply was this:

For me it’s because I WANT IT ALL. OK, maybe not. For fun, my day off work is Tuesday and everyone else is at work so I started going to a trade server, and now it’s like a drug, a drug that can be worn on your head. Plus it keeps me playing TF2.

which I think means is that it’s more about the act of trading for him rather than any actual hats he might get out of it. I can relate to that; trading games and business sims wouldn’t be nearly as fun if we didn’t get some kind of rush out of buying low and selling high to acquire desirable items for the best possible price, and this carries the added element that you’re dealing with actual people rather than a brainless computer with no business acumen whatsoever. Even if TF2 hat trading still doesn’t sound quite like my cup of tea I can certainly see why people might do it now that I’ve discovered just how complex the economy behind it actually is.

After spending this evening trawling the TF2 trading sites I’ve come away with it for a new appreciation for what Valve have created here. How much of it was intentional? Did they really mean for keys to become adopted as the game’s currency when they introduced them? Did they know that Bill’s hat would become a lynchpin of the economy when they were planning the release of L4D2? I don’t know. I doubt it. However I do think that Valve as a company have a definite talent for instinctively identifying new systems and mechanics that seem stupid and unnecessary when they launch, but which are widely seen as utterly indispensible five years later. They may not have foreseen the impact Bill’s hat would have, but they were savvy enough to realise that the Mann-conomy update would introduce a viable business model that’d let them run the game as free-to-play for the foreseeable future. They are visionaries, for lack of a better word, and I’m entirely unsurprised they’ve hired a bona fide economist to study the economic systems they’ve created – both in-game and out of it – and give them some idea of what they should come up with next. I don’t know what it will be, but I can guarantee you this: no matter what it is, it’ll be be so subtly revolutionary that in a couple of years time we’ll be wondering how we ever got along without it. The hat economy is yet more proof, if any were still needed, that Valve are probably the most innovative developer in the videogame industry today. You dismiss it at your peril.

Many thanks to Losty for his invaluable insights into TF2 trading. Also thanks to Jim for his help in sourcing the various links scattered throughout this piece, as well as for putting me in touch with Losty in the first place.


And a final footnote: my PhD is in physics, not economics. I have a smattering of advanced economics knowledge but mostly I understand things on the basis of supply and demand. Fortunately I happen to think the TF2 economy runs almost purely on a supply and demand basis, which is why I’m comfortable writing this article, but if you think I’ve got it wrong and that there’s something rather more nuanced going on here then please feel free to correct me in the comments.

EDIT: Okay so, first correction. I get quite adamant that the supply of Bill’s hats can’t decrease when in fact players can destroy any item in their backpack if they want to. However, given the absence of somebody going around buying up Bill’s hats en masse just so that they can destroy them (kind of like a really crappy version of Goldfinger) I don’t think this is going to have an appreciable effect on the total number of Bill’s hats in the game.


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15 thoughts on “An Economy Of Hats.

  1. Interrobang‽ says:

    One thing of interest that just occurred is the Level. All items have a level. Based on the page for that Warsworn Helmet, it’s a random number between 1-100 because the distribution is fairly even. Of those 7,000 Warsworn Helmets, just 30 are level 100. Are they worth more?

    No. No they aren’t. Everyone ignores that number. If I were to attribute anything to it i’d say it was a failed experiment by Valve to see if people gave a damn about a meaningless number attached to an item.

    Gentlemann’s Service Medal on the other hand… in that very special case numbers ARE worth something. Because they are UNIQUE. If you have #16, only 15 people have a higher numbered one than you. If you have #10,000 you have the VERY LAST ONE that was given out.

    I feel a lot of what Valve is doing (and they’ve said as much) is experimenting with the economy. Vintage. Original. Unique. Crafted By. Level. It’s interesting to see what properties stick and affect the price, and which don’t.

    • Hentzau says:

      That snippet about the Gentlemann’s Service Medal is interesting, and it does look like certain numbers are worth more. They’re more expensive purely based on the aesthetic value to human psychology of nice a round number or the cachet that owning one close to the end of the run carries. This would seem silly if real commemorative medals weren’t worth more or less based on exactly the same reasoning.

      • Interrobang‽ says:

        I like that on Trading Post simply ending in “69″ is enough to warrant people thinking it is worth more. Ahhhh adolescence. I bet #6969 is worth at least 50 keys.

  2. Nice breakdown of an interesting system. Your site is one of the more underrated game blogs I feel, and I appreciate the dual focus.

    • Hentzau says:

      Thanks! Kind words about my writing never go amiss and knowing that other people enjoy reading it encourages me to keep on doing it.

  3. Masked Dave says:

    I had a similar experience with a stranger friend requesting me. It was a teenage girl on a quest to “own all the hats” in TF2 and she was willing to trade me Steam Store money off coupons for them. And not petty cash either. I forget what I settled on in the end but she was more than happy to throw them at me. I couldn’t believe it at the time but it makes sense now!

    Very good article.

    • Hentzau says:

      Really? My experience of the Steam sales gave me the impression that coupons were worse than sale prices, giving you a smaller discount and a time limit in which to use them. You should have at least held out for a copy of Bad Rats.

  4. Masked Dave says:

    How come you don’t have a “Share on Facebook” button? If you did, I would have shared this by now.

    • innokenti says:

      In the meantime copy-pasting links will just have to do…

    • Hentzau says:

      Because I have a pathological dislike of Facebook in particular. Still, if I’m going to do this blogging thing properly I *suppose* I should start responding to the wants of others. The Facebook button is now added.

  5. Quwbi says:

    I personally luv tf2 trading and it is addicting, I enjoy because I can feel like I lov what I have and I can be rich in a game I love it’s an escape from the real world

  6. Daniel Jensen says:

    I as a TF2 trader, thank you for publishing this, I hope this article opens up the world to the fact that TF2 traders aren’t crazy people with a hat fetish, more like businessmen who buy and sell hats like stocks.

  7. Anonymous says:

    Awesome peace of text man

  8. Anonymous says:

    It’s February 2016 and here’s where things stand:

    -Only three currencies remain: Metal, earbuds, and, of course, keys. Bill’s Hat, the BMOC, etc., are no longer used as currency.
    -Keys are still fixed at $2.49 in the US (£1.99 in the UK), and this shows no sign of changing.
    -One piece of refined metal is currently worth roughly ¹/₁₉ of a key, and one pair of earbuds is currently worth roughly 2³/₄ keys.
    -The random item dropping system has been expanded upon with the introduction of “contracts,” small missions given out by Valve to players who paid a few dollars for a “contract ticket,” which are sold for a limited period of time every other major update or so. The contracts can give you fancy-looking versions of default weapons, some of which are more valuable than others.
    -Steam’s new requirement for mobile authentication is slowly killing small, low-value, peer-to-peer trades.

  9. Anonymous says:

    It’s December 2022 and here’s where things stand:
    - Earbuds are no longer used as currency, only keys and refined metal (ref).
    - Keys are still 2.49 USD/1.99 GBP, and worth 71 ref each. The increasing supply of metal from scrapping random drops has caused the economy to inflate, with craft hats being worth 1.66 ref.
    - Hats previously used as currency initially dropped in value, but inflation is bringing them back up. For example, earbuds were worth ~3 keys/5 USD in 2020, but spiked in Feb 2022 to 9.31 keys/15.87 USD and are currently 6 keys/10.22 USD. The BMOC peaked in Nov 2021 at 12.59 keys/21.45 USD, then dropped a bit and now is at a high of 14 keys/23.21 USD. Max’s Severed Head was going for 60–70 USD in mid-2021, but in 2022 the price has been a pretty constant 50–60 USD (~25 keys).
    - The random drop system has been updated to prevent idling, which has helped but hasn’t stopped the metal inflation.
    - Aside from the yearly summer, halloween, and winter content packs, the last major update was Jungle Inferno, released Oct 17th, 2017.
    - #savetf2 went pretty well, considering Valve only keeps this game around to milk the community workshop thrice a year. The movement was in May, and some cheats and exploits were fixed, as well as vote kicking made much easier. Bots still exist but they’re more of an inconvenience instead of game-breaking, at least in the US.


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