Virtuality as a precondition and necessity for the mankind development

Objective of the study: The research aims at exploring the way of interaction between virtual and physical reality and defining the approaches to analyze consequences of the virtuality penetration to the real world or vice versa.Methodology / approach: We apply a game theoretic method based on payoff matrix to show the essence of interaction between virtual and physical worlds; an internalization approach for solving optimization problem; graphical visualization of the interaction by using cones movement approach and analysis of cost functions to develop an equation of the city’s economy and to rebuild a model of optimal city size.Originality / Relevance: The majority of economic approaches have a linear-minded nature and only some take into account technological aspect. We state that the solution lies in consideration the costs as function of positive and negative exponential externalities. The proposed cost-based approach allows finding the optimal distribution of the time staying in the virtual and physical space.Main results: Obtained results of the research proved the following assumptions: interaction with new reality has changed us; a human is irrational in absolute majority; virtuality is a threat and an opportunity to the human. We confirmed that the nature of interaction between physical and virtual reality should takes the form of cooperation to ensure the mankind development.Theoretical / methodological contributions: It is one of the first attempts to develop economic theories and methods by extending them with variables of virtual reality.Social / management contributions: The study presents a broader view on human who exists on the fringes of physical and virtual reality.