Avatars, Capital Ships, and False Promises: An Analysis of Fraud in Virtual Worlds and its Implications for the Real World

We expand accounting research on fraud by categorizing and analyzing fraudulent acts in virtual worlds. Virtual worlds are computer-generated, immersive environments where players control a character, an avatar, to interact with others online while engaging in social, entertainment, educational, and commercial endeavors. Virtual worlds include unique capabilities such as anonymous interaction through an avatar and engaging and immersive visualizations. They also feature complex, unregulated economic environments. These features may increase the potential for rational individuals to commit fraudulent behavior and also likely encourage trusting beliefs and behaviors on the part of potential victims. To illustrate how and in what circumstances these environments can be used for fraudulent behaviors, we develop a socio-regulatory model to classify cases of virtual world fraud as within or outside social norms and regulations. We then adapt the “fraud diamond” model (Wolfe and Hermanson, 2004) to examine a number of documented cases of virtual world fraud. We discuss how observing virtual world behavior allows examination of the efficacy of explicit or implicit codes of conduct for preventing fraud within organizations, how virtual worlds allow observation of motivations of both the perpetrators and victims of fraud, and how fraud perpetrators use projected identities to commit fraud in virtual and real worlds. This research is important to accountants in organizations and society since we illustrate how virtual worlds can be used as “simulators” of real world fraud behaviors and show how behaviors and attitudes expressed in virtual worlds relate to comparable behaviors in real-world contexts.