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You let the players themselves control the content. Second Life does this. Eve does this, but very limited. As far as open endedness, I think the best way is to design a framework world which does have certain physics and rules. You are hands off for the rest.
Did Napoleon have the planet rating to capture those worms
Traits/skills do better than levels, though. That, I am convinced of.
When I get to part three in few days, I do have what I think is a workable solution.
Yitzi, the difference between skill systems and level systems basically comes down to scaling. Under a skill based system, you build your character fairly quickly, and he doesn't change much, stat-wise, once he is established.
They support different kinds of narratives. A leveling system is good for stories in which characters start out as barely distinguishable from the rest of the population, but end their stories as godkilling combat machines. A skill-based system is better for stories where your character gets his skills from his background, and the story is about the use of those skills, not their steady progression. Essentially, to use Anime analogies, level based is Dragonball, which is all about Training Ur Pwr Lvl. Skill based is more Cowboy Bebop or Outlaw Star.