Use Randomization to Cut Costs in Security and Enforcement–It Worked for American Airlines

Game Theory 101: keep your opponents off guard. If you can do that, you don’t need to work very hard.

Cops know this. They can’t monitor all motorists, so they randomly assign squad cars to high traffic areas. They put empty squad cars on the side of highways. The threat of being pulled over is good enough to prevent most people from flagrantly speeding. The result is safer roads for less money, which is good for taxpayers too.

Protecting Your Home For Less

You can use a similar technique to create home security at a fraction of the price.

Get as many neighbors as you can to sign up for a well-known home security system. Make it known that your neighborhood is safe. Create a neighborhood watch program where random houses volunteer to be on guard for theft.

Then, paste the home security logo prominently on your door. You don’t need to pay.

Here’s the logic of the game. Burglars generally want to pick on easy targets. But it’s likely they cannot tell which homes have security systems. If lots of houses have security systems in a neighborhood, they are less likely to target that area.

The outcome is that just enough homes get security so that burglars are discouraged from coming. If you keep burglars off guard by making them guess which houses have security, you can get good neighborhood security without everyone having to pay.

And of course, you want to be one of the homes that does not pay.

Does This Really Work?

I don’t know for sure. It’s an entertaining idea that I dreamed up using the principles of game theory. I thought it would be amusing though not necessarily practical.

I try not to confuse theory with practice. If you’re rich, can afford security, and have valuables, then why not pay for it? The actual solution is not the point of this article.

Why did I tell you about this game? First, I think it is a proper way to look at deterrence. And second, I found out it really does work–for people who care primarily about saving money.

Cost Cutting at American Airlines

I’m referring to money-driven business executives. These are people who are supposed to make rational economic decisions for their company. True cost-cutters will question every company purchase and make sure the operation is efficient. It would seem that some company must be using this principle, but where could I find such an example?

I was pleasantly surprised to find the answer when I was researching a completely different topic. It was in my research of Bob Crandall, the legendary cost-cutter at American Airlines.

It’s said that Crandall once saved American Airlines over $40,000 a year by removing one olive from salads in first-class meals. I wanted to corroborate that story, and I found the book Corporate Creativity (via Google Books). It claimed the figure was actually more like $500,000.

The book mentions another great story of how Crandall cut costs on security at one of its stations. Read carefully to see how he used the same game theory principle described above.

Here is the story as told by Corporate Creativity. (Don’t be intimidated by the seemingly large blocks of text–the story flows quickly and reads like a blog post)

One of the smaller stations in American’s system was on the St. Thomas in the Virgin Islands. As a service to its customers, the station ran a small freight warehouse where it held goods upon arrival or before shipment. Some of this freight was quite valuable. For example, a major customer of American in St. Thomas was Timex, which had set up a factory there to assemble its electronic watches. The station often found itself having to store watch components in its warehouse overnight. Because these parts were expensive (and were not the only valuable things in the warehouse), it became a favorite target for burglars. In the beginning, the station had hired three full-time security guards, which did eliminate the problem. Over time, under Crandall’s relentless questioning of every expense in the station’s annual budget reviews, the guards were cut to two, then to one, then to a single part-timer. Finally the guards were eliminated altogether in favor of a guard dog. But still Crandall did not let up.

The subsequent sequence of budget reviews for that station have become well known within American Airlines. It started when Crandall went over the station’s expense with its manager, George Elby. One line of Elby’s budget was for “services purchased.” When Crandall inquired about this item, Elby explained that it was paid to the company that provided the guard dog. Crandall pointed out that Elby could further reduce expenses by hiring the guard dog for only three nights per week, randomized so that potential thieves could never know if the dog was inside the warehouse or not [emphasis mine]. Elby went back to St. Thomas and tried this, and it worked. The next year, at the budget review, Crandall again questioned Elby’s “services purchased” item, even though it was now considerably less than before. When Elby reminded him that it paid for a guard dog on three randomly chosen nights per week, Crandall inquired whether the scheme had successfully kept the burglars away. Told that it had, Crandall gave Elby a new set of marching orders: buy a tape recorder, tape the dog barking, and then play the tape recorder on a timer, so that burglars would be fooled into thinking a real guard dog was inside the facility. Upon returning to St. Thomas, Elby did this, and it worked too!”

Crandall’s solution is fascinating. Here’s the line-by-line summary of how he reduced security costs:

3 full-time guards
2 full-time guards
1 full-time guard
1 part-time guard
1 full-time guard dog
1 part-time guard dog, three random nights a week
1 free tape recording of the guard dog barking, played at random times

Crandall truly cut costs by keeping the thieves off guard! Crandall did take a risk. If he reduced security and experienced a theft, that would have more than wiped out the savings in security. But he went forward because he predicted robbers could not anticipate the lowered security. After all, what kind of a thief would guess that a dog bark is just a tape recording?

And that’s the trick to it all: you can achieve enforcement/security/deterrence at a discount if your opponent cannot tell you are bluffing. Just make the bluff credible enough with randomization, publicity, and subterfuge.

Do you use tricks to keep opponents off guard? Share and I’ll post the best answers.

Learning how to use information to make good threats is one of the skills of applying game theory. For more, see my previous article about how to make better threats.

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Related Article

Michael Webster points us to an interesting article “Stop, Thief!” It’s about how society can lower car thefts by keeping thieves off guard:

Now let’s apply the principle that society has a stake in making your car secure to the use of a valuable antitheft tool called LoJack. If your car is stolen, you have the police activate the hidden tracking device by sending it a signal that works like a pager. The LoJack then starts broadcasting a homing signal. There is a 90% chance your car will be found, usually within two hours. We recently rode with the New Haven Police as they tracked down a stolen BMW. Locating the car was like playing a videogame, only more exciting because the game was real.

LoJack prohibits its installers from putting a sticker on the car advertising that LoJack is inside. One reason is to prevent the thief from tearing the car apart to find the device. A more important reason is that by keeping the device hidden, LoJack ends up having a much bigger effect on the deterrence and catching of car thieves. [emphasis mine]

LoJack is expensive ($700), and the car owner may rightly conclude that it doesn’t make sense if he’s paying the tab himself. But auto owners collectively would definitely be better off if more LoJacks were in use.