Book review: The Voltage Effect

Some ideas (in business, policy, or other fields) work well initially, but fail spectacularly when they are rolled out more widely. Other ideas work fantastically well. What determines the success or failure of an idea to scale? That is the question underlying the wonderful book The Voltage Effect, by University of Chicago economist John List.

List has had an incredibly interesting and varied career in economics. After completing his PhD in economics at the University of Wyoming, List was hired by the University of Central Florida (the only programme that gave him an offer). He worked his way from there to eventually land at the highly ranked Economics Department at the University of Chicago in 2004. More recently, alongside his academic appointment, he has been Chief Economist at both Uber and Lyft (and, since 2022, has been Chief Economist for Walmart, although that appointment occurred after this book was written). List draws on all of that experience, which includes an incredibly varied array of field experimental research, to populate the book with an array of engaging examples. I especially loved the stories that came from List's own life, including his experiences as a forklift driver at a Wisconsin cheesemaker, and as a collegiate golf player.

The purpose of the book, though, is to outline List's (evidence-based) view of what contributes to the success, or failure, of an idea to scale. This is nicely summarised in the last section of the book, which talks about what Jared Diamond referred to in his book Guns, Germs and Steel as the 'Anna Karenina principle': that any of a number of deficiencies could lead an idea to fail. Or, as List writes:

The secret to scaling isn't having any one silver bullet. There are multiple ways an idea can fail at scale, and to achieve high voltage, you must check each of the Five Vital Signs: false positives, misjudging the representativeness of an initial population or situation, spillovers, and prohibitive costs. Any one of these alone can sink your ship.

Now, rather than simply lay out how ideas fail to scale, List also helpfully presents several strategies that can be employed to help ideas to scale:

Once you clear these five hurdles, however, there is more you can do to improve your probability of success at scale. You can design the right incentives, use marginal thinking to make the most of your resources, and stay lean and effective as you grow. You can make decisions based on the opportunity cost of your time, discover your comparative advantage, and learn to optimally quit, allowing you to unapologetically cut your losses and move on to new and better ideas when appropriate. And you can build a diverse and dynamic organizational culture based on trust and cooperation, rather than competition and individualism.

Economics students would recognise a lot in those strategies that comes from basic economic principles. That should be no surprise, given List's disciplinary background, and these are all economic principles that are underappreciated in the general population.

Even aside from some basic economic principles, there is a lot to learn from the book, especially from the evidence embedded within the examples that List uses. For example, reducing class sizes in schools, as recently suggested by the New Zealand government, may fail to scale. That's because it requires the hiring of more teachers, and the new teachers are likely to be less effective teachers than those who are already teaching. That's where 'marginal thinking' becomes important.

I really enjoyed reading this book. List writes in an engaging style that is easy to read, which is uncommon among top economists (and I've previously noted List as one of my favourites for a future Nobel Prize - see here and here). This book should be required reading for businesspeople and policymakers, who are thinking about scaling their ideas. It is also a great read for economics and business students more generally. Recommended!