So do we rescue the princess first, or negotiate the cash price with the King beforehand rather than rely on his gratitude afterwards? My point is simply that xp based on loot can motivate behaviour that is just as unreasonable as xp based on combat.
We just finished a scenario last night. Part of that scenario involved visiting an old pirate cave, which connected with a much older ruin of an ancient civilization, because we needed a McGuiffin. Our explorations of the pirate cave didn't locate the pirate treasure, as we found the ancient ruin entrance first. Our characters didn't waste time searching the rest of the caverns for this rumoured pirate treasure, but returned with the McGuffin ASAP.
Now, I as a player know that the Baddies who had "just completed" their plan as we reached the climactic encounter would have "just completed" their plan if we had taken another week in the pirate caves. But the characters don't know that their lives are dictated by the module script, and not their own timeliness, so searching the old pirate caves wouldn't really be in character. But, under your model, it imposes a serious xp cost (and we noticed yesterday that our wealth is a bit off from missing that loot, too - treasure buys gear that enhances power, so making it also drive level gains makes it doubly important!).
Above, I noted varying interpretations of the same rule. I've typically interpreted xp as a reward for "defeating" the opponent. An Owlbear is just as defeated if we kill it, drive it off, befriend it, bribe it or slip past it, so why would the xp differ? In all cases, we have defeated the monster - achieved our objectives to the detriment of its own. Now, not following its tracks means we don't encounter it, so we don't defeat it. But why are the tracks there in the first place? If the author of the tale includes the discovery of those tracks, wouldn't the story have some purpose for those tracks? Shouldn't the bold heroes wish to ensure this magical beast is no longer a threat to innocent travellers? If an encounter with the Owlbear serves no purpose to the story, why throw its tracks in the adventurers' path?
The balance between the "game" part and the "role playing" part is a very subjective preference, and causes a lot of disagreements over "the best" way to play, including the most appropriate means of handing out xp. Gamists want the ability to get more xp than their teammates (the other oplayers are a form of competition), but narrativists may be quite happy to have everyone advance at the same pace.
Let's take an example. You placed enough treasure in this scenario to allow the characters to level up twice. However, due to their choices, bad luck or what have you, they missed most of the treasure, or left it behind, and as a result they did not level up at all. What's your next step:
(a) tell the players they missed all that loot and let them go back and haul it out (with no further encounters - they dealt with all of those)? same thing as sending them back if they missed a bunch of kills - all the same options exist if you didn't get enough combat-based xp, with a bit of fine tuning to provide for extra combat rather than cash.
(b) carry on with the next planned adventure, which would have been appropriately challenging for characters two levels higher - they made their choices and now they have to live with them!
(c) insert one or more buffer adventures (whether new encounters at the old scenario location as they retrieve that loot, or some other approach) to get them up to the appropriate level to challenge them appropriately in the planned adventure?
(d) override the xp count and arbitrarily level them up? Perhaps the beneficiaries of the PC's actions are retroactively much more grateful and/or wealthy than previously planned and reward them up to that next level or two. A Story Award, perhaps?
I suggest (b) probably means the party gets wiped out, but (a), (c) and (d) all mean their choices ultimately didn't matter much. Is there an approach I am not considering that satisfies both the goal of making their decisions matter and that of keeping the challenge level appropriate and the game enjoyable?
I do see one major advantage to "treasure as xp", thinking on it. It makes it much easier to ensure the "wealth per level" guidelines will be maintained, since you only level up by retrieving a level of wealth which, after expenses and consumable items, should leave the appropriate wealth by level.
First point: Clever players who are role playing mercenary-type adventurers should certainly and obviously try to negotiate the best offer before rescuing the princess. Heroic types may not be as concerned with their cash reward--and that's what makes them heroic. The lesser reward their characters receive as a result is exactly what makes that choice meaningful. If the heroic player sacrifices nothing by being heroic, it isn't really that heroic is it? Roleplaying heroism is about willing self-sacrifice; rewarding a PC just as much for going that route makes the choice ultimately less meaningful to the player. It's the same vein of thought as to whether you should flee from a losing battle abandoning your allies or risk death together. If there is no actual threat of death and/or no actual ultimate reward or penalty for this decision, it's meaningless.
Second point, regarding your game: My players are currently playing a modified version of Jason Alexander's modified keep on the shadowfell (they are all new players so everything is new to them anyways). In Jason Alexander's keep, the BBG is on a specific schedule for how fast he can complete his ritual. Player actions can slow down the process, but ultimately the BBG is going to be finished at no later than this date, at which point the rift opens and hordes of undead flow through. If the players spend their time jacking around in the wilderness doing nothing, the rift WILL open without them and they will face the full brunt of Ocrus's wrath for their foolishness. It is definitely not the case that no matter what they do they will ultimately stumble into the BBG ritual chamber at the exact last possible moment to avert catastrophe. They will either be early and have a good advantage, or they will be too late and get face stomped by hordes of ghasts and spectres and death knights and whatelse. To do it any other way would be to render meaningless their decisions, successes, and failures up to that point.
Regarding point 3 about the owlbear experience.
1st off, yes of course you can break the adventure up into segments and award experience for overcoming or avoiding those segments, but ultimately it becomes hugely confusing and subjective to keep track of what counts as avoiding and what counts as overcoming a challenge. If monsters are placed into a dungeon for the sole purpose of hindering the PCs it's a little simpler; at the end of the adventure just give the PCs any experience they would have gotten for killing the monsters they never encountered, either purposefully for accidentally, and just call it 'Quest XP'. But if you are putting monsters into an adventure for verisimilude alone this gets much more complicated. Are my wilderness owlbear tracks a red herring? Is it a critical side mission? Or is it just that the ranger asks if they are any interesting tracks around, you roll a dice, and owlbear comes up from a list of monsters that would logically live in this type of area? Your line of thinking about the owlbear (the DM MUST have an important storyline reason for including owlbear tracks) is also sort of meta game and kills verisimilitude imo.
Fourth point, regarding gamists. I sort of disagree that gamists want to do better than their team. I am a gamist and I DM a group of gamists and basically always have. My goal is not to do better than my team, but for my team to do better than other teams in the same situation. I see the game as a competition with better and worse choices and meaningful consequences for those choices, yes, but I'm not competing against the other players. I'm competing against the dungeon designer (whether that's the DM himself or another module writer) and against other players who have gone through the same dungeon. Even if I may never know how well others have done on a given adventure, I know ultimately whether I and the group as a whole made better or worse decisions for efficiently getting through the adventure.
Fifth point, regarding players doing poorly and not getting enough loot or exp from one adventure in order to take them into the next. First off, I don't feel constrained to choose adventures several sessions in advance, I will choose an adventure of what I think is appropriate difficulty only after my players have completed the current one. Figuring out from there how to make it fit into the larger plot of the campaign is all part of the fun. Secondly, I don't think it's a very convincing hypothetical counter-argument for this system. My players went through keep on the borderlands first, died about 20 times, and wound up with a third level party in the end with about 5 parties worth of treasure (since they were mostly able to recover the gear of fallen PCs) so they were actually a very powerful group. So in point of fact their poor playing (do to being a completely newbie group) made them more powerful than would be expected. But if they had been better players able to get through the borderlands without dying and thus have much less loot, well, that's ok too because obviously they can play well enough to not NEED that much of a loot advantage. So players, under this system, sort of naturally find their sweet spot where they will eventually have just enough loot to overcome the challenge of the adventure (so long as they keep recovering their dead PC's gear and generating new PCs with a full new gear complement).
Sixth point, regarding the advantages of this system. Your point about the ease of ensuring they are at the right power level wrt wealth/experience is true, but take into account that player death under this system is expected and thus so long as the dead PC's gear is recovered the players will occasionally accumulate wealth faster than experience. If you fear this becoming a problem (as it did in my game after 20 PC deaths with all gear recovered) you can simply reduce the likelihood of players being able to recover gear from dead PCs by having the monsters grab dead PC bodies and running or rust monsters or something like that.
The real advantages of this system are the simplification of rewarding and making meaningful player choice. Instead of trying to figure out which challenges are overcome and which are merely avoided, all you have to figure out is how much loot the PCs carry out of the dungeon or how much experience you want to reward for a specific quest completed. Instead of having to figure out how challenging a given encounter is (and then having that calculation possibly ruined by unanticipated player action) all you have to figure out is how much treasure a given monster or tribe of monsters is likely to have. About the most subjective calculation you would ever have to make is awarding quest experience points for players taking actions for the 'good of the people' without reasonable expectation of cash rewards; and then it's a simple matter of comparing it with how much GP they'd be able to get if they had gone another route; IE their opportunity cost. But still, players should be given a meaningful choice between being more or less heroic/altruistic, and the only way that choice is meaningful is if there are real consequences and real self-sacrifice in the offing. So does that mean that it would be stupid for PCs to tackle a den full of powerful dire bears when the dire bears wouldn't logically have valuable treasure and they aren't getting any other experience for it anyways? Yes! Yes it probably does! And giving the players the option of making stupid choices is exactly what makes smart choices exist; and in my opinion, players feel good when they make smart choices. If EVERY choice is a smart choice, there's nothing to feel good about.
As a final point, probably you are recoiling with horror at the thought of the PCs taking 20 character deaths in a simple 3 level adventure that took a couple of months to run. They've had 2 Keep on the Shadowfell sessions so far and suffered another 3 character deaths already. This sort of ruins a story-line campaign. But! Incompetent play that would be deservedly punished but is not through DM fiat would ALSO ruin a story-line campaign. The bottom line is that this is an inexperienced group of players that is making (and learning from) a lot of rookie mistakes. Failing to punish those mistakes and having the characters muddle through anyways, accomplishing great deeds against the odds, wouldn't really feel any more 'right' than having an endless succession of cousins, brothers, sisters, and children miraculously appearing to take up the arms of their fallen relatives just after they die. And, happily, my players haven't really gone that route anyways but have made new and ever more interesting characters as their old ones have died. They are in the learning stage, they know that, they are happy about it, and they are happy about having real tangible and immediate feedback on their decisions. Just making things always easy enough for them to win without dying would make it a lot more boring and unrealistic. If they want to play badass characters that wipe out hundreds of monsters without dying they have to earn those characters; that is what ultimately gives meaning to being able to play a character like that. Elsewise wouldn't we all just start at Epic Tier?
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