The Job Market as an Auction
As a Cornellian, the subject of jobs and internships never seems too far away from the mind’s eye. Here’s a fun thought experiment about the job market and how it can be viewed as an auction. For starters, let’s establish the bidders and sellers. From the perspective of a student, it seems only natural to view job openings as the items being sold and job applicants as the bidders of each item. A winning bidder gets a job and the other unsuccessful bidders must continue bidding on other jobs. To simplify things, suppose there is one item being sold (one job opening) and multiple bidders (multiple applicants). In a regular auction, the winning bidder pays for the item with money. While it may seem counterintuitive at first, this payment method also holds in our job market analogy. A successful job applicant, who wins the bid, pays for the job with the amount of profit he brings to the company after he starts working there. A candidate’s true value is the amount of profit he can actually bring to the company, if hired. This true value is correlated with his knowledge, skills, experience, etc. The amount of profit each candidate claims to bring to the company, if hired, is his bid. During the auction, each job applicant will make a bid, and the job applicant with the highest bid will receive the job.
Given this setup, we can ask if it is a dominant strategy to bid truthfully. In other words, is it the best response of every job applicant to be honest in the amount of profit they can bring to the company, if hired. To see if bidding truthfully is a dominant strategy, suppose everyone bids truthfully. Then, the most qualified candidate will end up bidding the highest value and subsequently will be the one to receive the job offer. Now suppose one of the other candidates, who is less qualified for the job, bids untruthfully by bidding higher than his true value. This can be done through pretending to have work experience he does not have or by exaggerating his skillset. If the untruthful bidder ends up bidding a value higher than the most qualified candidate’s true value, then the untruthful bidder gets the job. As such, truthful bidding is not a dominant strategy.
There are some obvious limitations to the scenario presented above. For example, job applicants will likely have background checks, take technical interviews, and go through other screening processes to ensure that their bid is in fact their true value. If a candidate is found guilty of untruthful bidding, they will be taken out of the applicant pool for that job. However, in the real world, it is clear that this is not always guaranteed to happen, given the amount of people who have overexaggerated their resumes and still landed job offers. Thus we could go one step further in our bidding analogy and say that job applicants will take into account the risk of being found out when they decide to bid untruthfully. Intuitively, the more untruthful the bid (the more the applicant stretches the truth or lies about his abilities), the easier it is to discover the bid was in fact untruthful. We could calculate the expected value of the job applicant when he stretches the truth versus when he outright lies on his resume. If given the right data, these expected values could be calculated, giving more interesting factors to consider in this thought experiment.