I thought I'd iterate the issues:
* US$8 is still above the daily median wage. He might be seeing piracy in other countries and people might be playing it on an old 486 or something.
* Kids: some have an allowance and some maturity, so they'll buy it, otherwise many will pirate it over asking their parents for their credit card.
* Many of the legitimate purchasers pirated a copy as well for convenience.
* The most overlooked reason IMO: Demos are shit. In the old days of "shareware" you'd get Doom or Winzip and it'd be like 1/3 of the game or 90% of the app. If you called it shareware that'd get you a fuckload of credibility, but calling it a demo means people are going to think it's like 5 minutes of playtime (and I haven't played the Demo, it probably is). To "try" the game many just pirate it. If they like it they then pay for it.
I wonder how piracy works in the game, and whether it works like it does in real life. In any case, the pirated version of the game saying "piracy is bad mmkay?" by way of the mechanic may be novel, but it still seems a little didactic. If piracy was simply modelled and you just developed games differently (can you use kickstarter in the game?) I wonder how that would paint the dichotomy.