Sunday, May 18, 2003

I thought that it might take some time to write about job market mechanics, but then I realized that I already wrote a paper on this topic a few weeks ago for a class in Organizational Behavior.  The paper explores precisely the question that Lawrence poses: why do people prefer to hire those with whom they are acquainted rather than the most qualified person for the job?  Why do networks prevail over transparent evaluations? The paper (which was jointly written with another student) is long, so I shall only quote one section.  I have added links to provide context that one would otherwise have when reading the paper in its entirety. Returning to the problem at hand, how does the model of a manager as a boundedly-rational decision-maker affect performance evaluation results?  We can look at a simple example of a manager deciding between two candidates for a new job.  Candidate A is known to the manager, and the other, candidate B, is not.  Candidate B, however, has better qualifications on paper and appears to be a better fit to the tasks of the position.  What is our manager to do?  With limited information, facing a classic problem of uncertainty, it is unsurprising that the manager often chooses candidate A.  In doing so, the manager is acting to maximize her expected utility (and, absent agency conflict, the firm’s) in a context of uncertainty, using heuristic shortcuts to overcome the complexities present in the decision.  This model, showing rational behavior within relatively constricted parameters, is much closer to observed behavior in the real world.  Managers’ preferences for known candidates over unknown but better-qualified candidates are a direct result of boundedly-rational decision-making practices prevalent in humans. 5:27:19 PM    comment []

A lovely day yesterday - a picnic lunch, then a Korean BBQ at a large estate, dinner in Paris with friends, and the wildcard of the evening: a hidden salsa bar.  Life was good. Lucky is tired and trying to catch up on work.  But he is content.   3:15:18 PM    comment []