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The Game Theory of Recruitment

http://www.harbus.org/2017/game-theory-recruiting/

Have you ever wanted to take some time for academic self-discovery, to find out what it is that you really want to do? But then suddenly application for internships are due and you still do not know what you like? Well, there is a reason for that: Game Theory.

For both students and companies, the internship search process is difficult. Students are exploring career options, and companies have do not have a lot of data about the students. They just have some information about past experiences, clubs they participate in, grades, etc. However, these experiences are not necessarily what the student really wants to do. Both actors in the internship search process would be better off if the process started later in the year instead of in the fall. But, companies compete for the best students with other companies. If they want to snatch the very best students, they should offer them positions before other companies do, even though they will be less informed about the students if they do this. Let’s take a look at the figure below:

If other companies recruit early, then you should recruit early as well before candidates accept jobs elsewhere. If recruiters recruit late, you will be better off if you recruit early because you will have the best candidates in your applicant pool. This creates an equilibrium where all companies end up doing their recruiting process early in the year.

This process is analogous to the Prisoner’s Dilemma that we saw in class. Suppose we have the table from below:

Both prisoners would be better off if both of them kept silent. However, there is an incentive to speak up. If the other prisoner speaks up, you should testify too since it brings down your sentence from 10 years to 8 years; and if your partner doesn’t testify and you do testify, then you will be released. Therefore, the equilibrium occurs when both prisoners testify and both go to prison for 8 years. This is the same result as in the recruting process, where the equilibrium outcome is not the best for each company individually, but considering the actions of the others it becomes the best outcome for both companies.

It is extremely interesting that the phenomena of internship applications starting so early can be explained with a topic that we saw in class. It is something that had bothered me before, and I could not understand why this occurred. Now, after studying it in class, I do not consider it as irritating as before because now I can finally understand why this happens. I sincerely hope that this explanation reaches someone that felt this way too, so that they can comprehend the process and make the most of it.

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