by Barry Goldman
The New York Times had a piece recently about a clever hustle called station flipping. It involves Citi Bikes, the blue rental bikes you see all over New York City. It seems the natural movement of people and bikes around the city results in periodic imbalances. Sometimes there are too many bikes in a docking station, other times there are too few. So Lyft, the company that owns Citi Bike, implemented a program that rewarded people for moving bikes from one station to another to correct those imbalances. The miracle of modern information technology enabled the company to track the location of its bikes with precision and to tweak the reward structure in real time. The system awarded points, and the points could be redeemed for cash. Moving a bike from a full docking station to an empty one could earn a “Bike Angel” up to $4.80.
People respond to incentives. They also, in every system everywhere, “work the points.” As a direct and inevitable result, people figured out how to game the Bike Angel system. They realized they didn’t have to wait for the natural movement of bikes and people to create shortages and surpluses, they could manufacture them.
The algorithm updated every 15 minutes. Some docking stations are only a block apart. That means a group of aerobically fit Angels can empty one docking station and fill another by riding bikes to the empty station and running back to the full station until the conditions are reversed. If they can do this before the system updates, they can earn the maximum for each ride. Then, when the full station is empty and the empty station is full, they can reverse the process and do it again. Before too long some enterprising Bike Angels were earning up to $6,000 a month.
The company, predictably, was not amused. It says station flipping distorts the market and games the system. That’s pretty rich coming from Lyft, since its whole business model depends on gaming the system and distorting the market by fudging the distinction between employees and independent contractors. But that’s a different article. In this article I want to point out how station flipping maps the essential features of our financial sector. Read more »