Information Cascades in the Labor Market
Bandwagon behavior can be found in many areas of society, and is sometimes so prevalent that it can be hard to identify. This behavior is rooted in information cascades, in which people make decisions based on the observed behavior of others, even if it contradicts information acquired empirically. Although it sounds foolish to disregard your own information and beliefs in favor of the oft-misguided “wisdom of the crowds,” it can often be to your benefit. After all, the general population usually has access to more data than any one person, and thus can make a more informed decision.
One area where the bandwagon mentality shapes decisions, according to the article in The Economist linked below, is in the labor market. The author of the articles points to research indicating that job applicants who have been unemployed for a longer period of time are less likely to be hired than similarly qualified applicants who are currently employed or are recently unemployed. This trend can be attributed to information cascades, as employers may assume that there is some unseen deficiency in a job candidate who has been rejected by many other potential employers.
Although in some cases this approach is justified, it can also be detrimental, as it’s possible for a very qualified and capable candidate to have been unemployed for a longer period of time. For example, if someone narrowly misses out on a job opening, this can start a chain of rejections as the candidate becomes longer and longer unemployed. If we take this behavior to be the entire basis of hiring decisions, one could imagine a “tipping point” at which a candidate’s length of time without employment is so great that no one will consider the candidate for a job opening, and they will never be hired. As the author of the Economist article points out, “Once the bandwagon starts to roll, it is hard to stop.”