Saturday, December 28, 2013

Scarcity by Sendhil Mullainathan & Eldar Shafir

The Title reads “Scarcity: why having too little means so much?”, It is amazing so much can be written about one single word!. I would say it is moderately researched since it is a new domain. The episodes are carefully chosen. A few new terms like bandwidth scarcity, focus dividend are introduced to drive certain concepts. There are some inevitable repetitions, but I surmise, it would have to happen when you try to explain a new frontier.

Let me summarize the points that strike me well: It may sound far too obvious, not even in retrospect but right away – yet, the value comes from understanding them all over again from Scarcity standpoint with poignant examples they give along the way with some empirical data.

Before embarking on the task,let me cite one case study (not from this book). APSRTC (Andhra Pradesh State Road Transport Corporation) had some of the highest fatal accidents. APSRTC at the time of case study had 23000 buses, 12 million Passengers, and 820Kms/day average. They did one simple thing that resulted in the accident rate dropping from 0.13/Km to 0.09/Km – not a small improvement for such a scale. All they did was to mandate the driver to place the photograph of the driver’s family above the dash board. Come to think of it - It is not that driver is completely oblivious of his/her family. Yet, a gentle reminder at the right time seems to instill a much better and safer driving habit. Authors’ examples would be on similar lines – obvious after it has been told.  I liked all of them!
Now on to some specific points.

1.When a deadline approaches, you concentrate so much at the expense of other priorities and get it done/accomplished. This is called focus dividend. Of course, there is a perverse outcome too – you tend to ignore something that matters to you over the long run.

2.  Carefully crafted incentives can yield disproportionate returns. They cite rural poor who were willing to show up for vaccinations just for free lentils, where absenteeism otherwise was very high.

3. Bad news: You cannot fake scarcity. So if you have lot of time before the deadline, you tend to waste a lot of time before you hit the red button and make it happen. Early abundance encourages waste. 

4. Buffers are extremely critical be it time or money or any other resource. Lack of buffers almost always results in less than optimal and even rational behavior. Buffers are the bulwarks against such risks.

5. Except poverty of real poor, most of the scarcity can be well managed. It is because one cannot simply wish away or take vacation from poverty.

6. Scarcity reduces the bandwidth which in turn can affect the quality of decisions and hence the outcomes

  Note:Point 3 and 4 may seem like a contradiction, but when you read the book fully you can appreciate the contexts better.

Now on to some examples in a very short version - hopefully it has not drained the magic.

1.   St John Hospital was perpetually running over time in operation theaters. Staff were over worked and frequent rescheduling of non-emergency operations owing to sudden inflow of emergencies created havoc. It caused a lot of heart burn and disappointments.When an Operations Research specialist analyzed the problem, he recommended a simple solution. Leave one operating room always free for emergencies.This may fly in face of the apparent load, But it worked very well. Emergencies are broadly predictable and having a buffer to accommodate made improving efficiency very easy.

2.  US military was troubled by “Wheels up” crashes. After landing, pilots would retreat the wheels instead of flaps! To solve this problem, Lt Alfonse, Psychologist by training was brought in. Thankfully, he decided to look inside cockpits before looking inside pilots’ heads. Firstly, this problem was confined only to B-17 and B-25 bombers where the wheel controls and flap controls that are identical were side by side. Hence, it was too easy to make that mistake. Once the design flaw was detected it was easily resolved.

3.  MARS Orbiter Project: Well, it was not meant to make  major discoveries  but was designed to be a spearhead to collect data about MARS at a cost of $125 Million. It was designed to enter the stable orbit of MARS and collect data. Entering the orbit is an intricate business – you have to do it with extremely precise speed and angle. Enter too slow, gravity catches up and there would be a crash. Enter too fast, you will skate away from the orbit forever. Orbiter did not make it to the stable orbitL. Aftermath, scrutiny followed and it turned out the subcontractor for the module assumed the British system of units whereas rest of the system was in SI units. Owing to the last minute rush (time scarcity because you cannot change any celestial schedules!)  and so testing was overlooked), the whole project failed.

There are other good business examples related to Benihana Hotel Chains, Chevy’s restaurants and about FORD’s insight on productivity. My favorite is “Poor bees and rich wasps ”.

American Philosopher, Eric Hoffer observed, “The most gifted are at their creative best where they cannot have their way”. Not necessarily only the gifted. When pushed to the corner, most of us also can become creative provided scarcity is transient (poverty not included). Sometimes one has to evaluate by being resourceful rather than full of resources.

Thanks for reading this far…..