ADRIAN FLORIDO, HOST:
Some ideas work really well as a small experiment, but on a large scale fall apart. Economist John List lays out why some ideas go big and others don't in his new book, "The Voltage Effect." Greg Rosalsky and Darian Woods from NPR's daily economics podcast The Indicator kick us off with the cautionary tale of the Arch Deluxe burger.
GREG ROSALSKY, BYLINE: In the mid-1990s, McDonald's tried to launch a new cheeseburger called the Arch Deluxe. The company's growth had flatlined, competitors were eating into their sales, and McDonald's developed the Arch Deluxe to try and reverse this decline.
DARIAN WOODS, BYLINE: And this burger stood apart from the other McDonald's burgers. It had this stone-ground Dijon mustard, a peppery spice, smoky bacon and a split-top potato bun. John List says that McDonald's began testing this burger in focus groups.
JOHN LIST: Now, what they found in those focus groups is that it was a wild success. Those focus groups loved the Arch Deluxe.
WOODS: So the company wanted to scale it up.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON: It starts with a full quarter-pound of beef.
WOODS: And they spent hundreds of millions of dollars blanketing the airwaves with ads.
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UNIDENTIFIED PERSON: If it were any more grown-up, we'd need to check your ID. It's McDonald's with a grown-up taste.
WOODS: This was the most a fast-food company had ever spent on a product launch.
ROSALSKY: But sales of the burger proved to be abysmal.
LIST: They scaled it. And it turned out to be a deluxe failure.
ROSALSKY: (Laughter) It's literally in the Museum of Failure, which is an actual museum.
WOODS: How could this be a deluxe failure? Well, John List says that those focus groups that inspired McDonald's to scale up the burger - those focus groups were flawed.
LIST: That focus group is probably someone who is either crazy about McDonald's or loves all kinds of burgers or loves to try new things.
ROSALSKY: In other words, the people who participated in the focus groups were not representative of customers at large. Economists like John call this selection bias. The people who volunteered or self-selected to take part in the focus groups were not typical consumers.
LIST: The average person, as it turns out, would rather just have a Big Mac or a Filet-O-Fish and french fries. They don't want the fancy stuff.
WOODS: The Arch Deluxe is an example of ignoring one of John's vital signs. Now, this is a bit of a mouthful - misjudging the representativeness of an initial population or situation.
ROSALSKY: Another vital sign that John identifies in the book is looking out for false positives.
WOODS: And this is common in social science. One study shows something works, but then when someone else tries to do a similar study, the results fail to replicate.
LIST: You should constantly be poking and prodding at your idea to make sure it's a true result.
ROSALSKY: A third vital sign is watching out for unintended consequences. John gives the example of Uber trying to raise wages for its drivers. It did this by raising their base fares.
A recent study found that it worked at first, but after six weeks, Uber drivers' hourly earnings fell back to what they were before the fare increase. Why? Basically, because the opportunity of making more money in the app enticed more people to drive for Uber.
LIST: And in the end they're working more, but they're driving around with an empty car more often, and they undo all of the good stuff of the rate increase.
ROSALSKY: There's, of course, much more in the book. Maybe reading it could help you avoid the Museum of Failure.
WOODS: I do not want to end up there, Greg (laughter).
ROSALSKY: Greg Rosalsky.
WOODS: Darian Woods, NPR News. Transcript provided by NPR, Copyright NPR.
