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Game theory in the popular press.

Game theory applied to lure health care workers

Money won't solve nursing shortage

Dayton Business Journal
David Miller
March 26, 2001
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I signed on to eBay today and looked at the bidding for baseball memorabilia. The bidding for most items made sense to me: There were fewer bids and lower prices for more common items (three bids, $90 for a Ken Griffey Jr. autographed ball), and more bids and higher prices for rare items (30 bids, $710 for a Babe Ruth autographed photo).

But what if bidders kept raising their bids for an item even after it had been sold, when there were no more pieces available?

Bidding when there are no more available items is irrational, but in a sense that is exactly what hospitals are doing by using big bonus offers to attract new nurses. It's not that the nurses aren't worth the money, it's just that there aren't any more nurses to be hired.

Like the Babe Ruth autograph, trained nurses are in high demand and short supply these days. According to the Ohio Hospital Association, the number of health care workers in Ohio increased by 25 percent in the last decade. The aging of our population will only accelerate the demand for nurses in the future. But the number of nurses is not keeping pace with this increased demand.

Ohio nursing schools reported a 36 percent decrease in students between 1995 and 2000. The average nurse in Ohio is 47 years old, and during the next few years it is likely that more nurses will retire than will enter the work force as new graduates.

Hospitals are responding to this shortage by bidding up the price of nurses. Each hospital competes with other hospitals for a limited supply of a scarce resource. Hospitals have raised nursing wages sharply, but the real extent of their desperation can be seen in some of the gimmicks and bonus offers made to lure new nurses to their facility.

Large signing bonuses ($5,000) now are the norm for some positions, and some hospitals have complemented these by paying other employees a finder's fee for referring new nurses. Hospitals offer full-time pay for part-time hours, offer to pay off school loans, and offer special bonus pay of up to $39 an hour for weekend, evening and hard-to-fill positions. Add some gaudy newspaper ads and jazzy radio spots and you get a carnival atmosphere which reminds me of the first Beanie Baby craze.

There is just one problem: In the short run, this desperate bidding does not increase the supply of nurses.

Ultimately, more students will be attracted to nursing programs if the wages stay high, and there will be some nurses who choose to work more hours or come back into the workplace in response to these windfall offers. But, for the time being, most of the available nurses already are working. So, hospitals are bidding to steal nurses from each other; this is where the irrationality and the game theory come in.

Game theory applies to situations where your choices and decisions are partly governed by what you think your opponent will do: The childhood game of scissors, paper, rock is a good example. In the case of hospitals and nurses, it is not in hospitals' collective interests to bid up the price of labor when there are no more workers available.

But each hospital worries about what will happen if another hospital raises nursing wages and they don't. So the first hospital raises their wages to offset what they think their competitor will do. The result of all the bidding is that each hospital winds up with about the same number of nurses and much higher expenses.

Hospitals cannot and should not work together to dampen the bidding for nurses. In the long run, the higher wages will solve the shortage by attracting new workers to this profession. In the short run, though, hospitals, state government and the medical profession need to accept the fact that the number of nurses is limited. They should focus on finding new ways to care for patients that require fewer nurses. For example, can other professionals who are not in such short supply do some of the nurses' work?

A spirited auction is fun, but when scarce items are involved, more bidders don't mean more buyers.

2001 American City Business Journals Inc.