Game Theory and On-Campus Recruiting
To the majority of Cornell students not interested in pursuing a career on Wall Street, their only indications of when on-campus events and interviews are going on is when they start seeing many of their peers in AEM or Econ wearing suits throughout the day. Though it may be unclear to the average Cornellian, students currently looking for a job in finance are faced with a recruiting timeline that is earlier than it has ever been. Just a few years ago, most banks and other financial firms would begin interviews in January, and hire their summer interns by March. This year, firms began holding interviews in August and expect to have their summer intern classes filled by November. Why have these changes all occurred over the past couple years?
We can understand the changes in recruiting through the lens of Game Theory and asking why the former Nash equilibrium of finishing hiring by March would shift to where it is today. Broadly speaking, recruiting top young talent was much easier for banks pre-financial crisis. At that point, only a handful of large banks dominated the industry, and Wall Street was viewed by students as the premier path to success following their 4 years of undergrad. In these circumstances large banks on Wall Street were still able to hire top talent through starting their recruiting process after Winter break. From a student’s perspective, they had no qualms waiting until after Winter break because while demand for Wall Street jobs were high, the industry was immensely profitable and as a result there were plenty of jobs available. As a result it was highly unlikely that a student would be unable to find a job in finance.
Since 2008 two main factors have resulted in a shift from the former Nash equilibrium to the new recruiting timeline. The two factors are the emergence of smaller boutique banks and less supply of investment banking jobs. Firstly, the emergence of boutique banks shifted the payoff matrix of competition for talent within the financial industry. These smaller banks do not have the same resources as the larger banks, so in order to attract top talent, they moved their recruiting earlier and gave students job offers that expired before they had a chance to interview elsewhere. In this scenario, the boutique banks had a positive payoff because they were able to poach the top talent from the larger banks who had a negative payoff. In response, the larger banks began moving up their recruiting too, resulting in a Nash equilibrium of beginning the recruiting process at the earliest possible time (the start of the school year).
The second factor was the decrease in available banking jobs following the financial crisis. Previously students would choose to prep for their interviews over Winter Break so they would be better prepared for their internship search. However, a decrease in available jobs on Wall Street made it more likely that a student looking for a job in finance would end up without an internship. Therefore the dominant strategy for students shifted from taking time to prepare and applying later to preparing over the summer and finding a job as soon as possible. As a result, financial firms began realizing that they would have to begin recruiting earlier, because the likelihood of a student finding a job in another industry before the traditional recruiting timeline (ie. Consulting or Tech) greatly increased.
Through these changes following the financial crisis, we can see a real world example of how the Nash equilibrium shifts depending on a change in payoffs. However, based on the fact that these changes only fully occurred in 2016 (7 years after the financial crisis), there is some “stickiness” when it comes to how quickly each party reacts to a change in the payoff matrix.
Harvard Crimson article on on-campus recruiting changes: http://www.thecrimson.com/article/2016/5/24/OCS-wall-street/