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Why does Fallout Shelter provide Collect: On/Off options for Mr. Handy? Is there any specific circumstances where we'd prefer Mr. Handy not to Collect things?

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There are some challenges like "Collect 300 food in 2 minutes" or something to that effect. Him collecting things at his will may interfere with your plans to harvest all your diners at the same time to complete the achievement.

Other than that, or just tyrannical rule where you want to starve everyone, I can't think of any reason for him to not collect resources.

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