The Game Theory of Recruiting

by on November 21st, 2017

Today’s article was submitted by Sumit Malik, Deputy Editor-in-Chief.

A common refrain among incoming business school students is the promise of self-discovery through an MBA, a rare opportunity to leverage insight from peers across industries to inform career decisions. At the same time, seemingly running counter to this message, recruiting emails begin pouring in before the incoming class is finalized, and on-campus internship recruiting commences shortly after first-year students set foot on campus.

For many students and firms alike, the timing and pace of the internship search is challenging. Students often are just beginning to explore career options, while companies have few data points on students’ demonstrated interest in new career paths, academic performance, and extracurricular pursuits. Collectively waiting until later in the year to accept internship applications would allow for a more thoughtful, focused, and prepared candidate pool, as well as greater company visibility on summer resource requirements. If firms are keen to attract talent for the long run, why recruit students who have yet to demonstrate aptitude for the MBA curriculum or develop conviction on their career preferences?

The rationale for accelerated recruiting processes goes beyond the lead time and advance planning required for internship programs. Despite the collective benefits of a later recruiting cycle, each company is individually incentivized to attempt to recruit and hire before its competitors, obtaining first pick of top talent. As firms uniformly choose to recruit earlier, lest they be left only with candidates passed over by their peers, their competitive advantage is eroded, along with the benefits conferred to companies and students alike from cooperatively waiting until later. The result is that even though companies would, in general, likely be better off deferring recruiting until later in the year, they recruit en masse in the fall.

Though seemingly suboptimal, the outcome isn’t unusual. It follows a pattern consistent with the well-studied Prisoner’s Dilemma, framed and interpreted by mathematicians Merrill Flood, Melvin Dresher, and Albert Tucker in 1950, whereby rational parties may not cooperate even if cooperation is in their best interests.

The Prisoner’s Dilemma (left) can be generalized to describe incentives in the recruiting cycle (right)

The Prisoner’s Dilemma lays out a scenario in which two partners in crime are arrested and held apart in separate cells, with insufficient evidence to convict them on the most serious charges. A prosecutor offers each prisoner the following deal: if you testify against your partner and your partner remains silent, your charges will be dropped, and your partner will be imprisoned for 10 years (and vice versa); if you both testify against each other, you will both be imprisoned but receive parole after 8 years; if neither of you testifies against the other, the existing evidence will only convict on token charges, leading to 1 year of jailtime.

While the latter scenario, where neither prisoner testifies, results in the best collective outcome, a rational, self-interested prisoner will always testify. From a prisoner’s perspective, irrespective of my partner’s action, there is an incentive for me to speak up. If my partner remains silent, testifying improves my outcome from 1 year of jailtime to having charges dropped; if my partner testifies, speaking up improves my outcome from 10 years of jailtime to 8 years of jailtime. Perversely, even though cooperating and remaining silent could result in only token charges for both criminals, the equilibrium is that the criminals point fingers at one another, and the prosecutor puts them both away for 8 years.

The recruiting cycle, at a high level, can be modeled in an analogous fashion. Notwithstanding benefits from a later recruiting process, firms are individually incentivized to race for talent. From the perspective of a recruiter, if other companies recruit early, I should follow suit before prospective candidates accept offers elsewhere—or I will be left with a poorer-quality applicant pool. If competitors recruit late, I benefit from exclusive access to top talent if I move quickly. This creates an adverse equilibrium where recruiting occurs at breakneck pace.

Systems have been put in place at Harvard Business School to slow the recruiting process, including restrictions on recruiting events on campus for the first several weeks of the fall term and a gap of over a month between the start of classes and dissemination of the student resume book. These rules work to create beneficial structure around recruiting, but at its core, the game remains the same.

***

Sumit Malik (HBS ’19) is an investor, writer, and entrepreneur. Professionally, his background is in venture capital and private equity at Warburg Pincus, strategy as a board member of Santander Asset Management Chile, and investment banking at Goldman Sachs. Personally, he writes for academic and popular publications and performs music and poi (light- or fire-spinning). He previously received an A.B., summa cum laude, from Harvard College and an S.M. from the Harvard Graduate School of Arts and Sciences.

The post The Game Theory of Recruiting appeared first on The Harbus.

Ask a Question or Leave a Reply

The author The Harbus gets email notifications for all questions or replies to this post.

Some HTML allowed. Keep your comments above the belt or risk having them deleted. Signup for a Gravatar to have your pictures show up by your comment.