⚡The voltage effect

The other day I was listening to an Econtalk podcast where Walmart Chief Economist John List was talking about his book "The Voltage Effect". It took me back to my demand & supply side economics lessons from school. Thought I'd share some learnings from it ⬇️

In a broad sense, the voltage effect is a description that tells us what happens to an idea or a program when we go from the small to large. Usually the voltage effect leads to a voltage drop, which means an idea might have looked good in its nascent stages but once scaled - it doesn't look so good.

In the first part of the book Professor List argues that for an idea to be considered great it should pass a few vital signs that determine if an idea or a policy has the DNA to scale and avoid a voltage drop.

I've summarised the five vital signs that he touched on below 👇

False positives - Many a times, whether it be in the context of startups, administration or public policy, an idea may look like it had voltage to start with, but in the end it turns out those assumptions were wrong. The data was lying to begin with i.e. the sample data was was not representative of the population.
Know your Audience - In many cases, people have a tendency to overestimate the number of people who see value in a particular idea/solution or offering. This has the potential to have drastic consequences.
Know your situation - When data that is generated for the purpose of efficacy tests, is not communicated properly to decision makers, subsequent attempts at scaling the idea leads to a voltage drop.
Ideas have spillovers - Not only in terms of spillovers on others, but there are also behavioral spillovers. For example, think about a rule or regulation that causes people to change their behavior. In behavioral economics this relates to moral hazards.
In the supply side - we need to assess if an idea has economies of scale, constant economies of scale or decreasing economies of scale. What might look great initially, could well suffer from decreasing economies of scale in the future. Decision makers should be vary of this.