Last week at HBS, ‘it’ started.
‘It’ is the beginning of what some students describe as the recruiting blood bath. As the rejection emails (or silences) began to flow, everyone felt the disappointment and a small measure of panic crept onto the campus. The sputtering US and global economy has certainly soured the recruiting game at HBS. But is there something else-more than meets the eye-that’s going on here?
HBS students, desperately worried by the prospect of not securing a summer internship, have carpet-bombed the internship bank with resumes and cover letters. Stories abound of students who have applied to dozens and dozens of internships. There is one unconfirmed report of a student who submitted 86 applications! A large number of students will admit that they have little, if any, interest in many of the internships they’ve applied for, but have done so only to protect against the embarrassing fate of not having any options.
But why is this occurring and what is really going on? We are participating in a collective “prisoners’ dilemma” on a grand scale. This term describes a scenario where individuals’ strategies for optimizing their respective outcomes fail to optimize the collective outcome for the group. In our HBS example, each student sends in a great number of applications to increase his or her chances of securing employment. Because each student fears not getting jobs that they might normally have secured, they submit extra applications (possibly including some that may be “safety” internships, in which the student may be only slightly interested) to safeguard against being left without anything.
From the point of view of an individual student, this strategy makes perfect sense; the more applications one submits, the greater the chances of securing at least one job. However, it guarantees an inferior outcome for our class taken as a whole, including us as individuals. Since everyone has followed the same mass application strategy, getting the interviews that we really care about has become exceptionally more difficult for everyone. For every application submitted, there is a harmful external effect to other applicants, namely overcrowding internship opportunities. As a result, we have demanded too much of a resource (job interviews) creating a negative externality with an inefficient market outcome. This phenomenon is what is often called a “tragedy of the commons,” wherein excessive competition between individuals spoils the outcome for the group as a whole.
Interestingly (and sadly), those people who suffer most from this result are students who came to HBS in order to change careers. Would-be career-changers must hedge themselves in the application process by applying for positions in which they already have experience, in addition to those new positions they wish to explore for a summer. Ironically they are out-competed for these new positions by other would-be career-changers, already experienced in these functions and industries, who might themselves have been rejected from internships they sought in new fields! In this way, this year’s internship application process has resulted to a large extent in an inefficient allocation of summer positions.
What we’re seeing then is nothing other than a real-life example of market failure! As John Nash, the founder of game theory, noted in his original observations about this sort of behavior, we have an example where the market, left to its own devices, will fail to achieve a proper allocation of resources, in this case job interviews. The market fails to allocate job interviews to the students who value them the most.
So what are some potential solutions to our HBS prisoners’ dilemma?
First, (as Keynes said) we shouldn’t forget how much information dissemination by itself could help. If people simply understand the tragedy of the commons problem they may choose to stop, or at least reduce, the destructive behavior. Just by reading this article, for example, some people might alter their behavior in the future and the plight of the class would be improved.
Second, the Government (HBS Administration in our case) could step in to help correct the market failure-and it could adopt a market-based approach to the correction. One idea could be for the Administration to establish a “points” or “bidding” system, similar to what we understand is used to allocate courses in the second year. Students using HBS recruiting services could be given say 1000 points to be used as currency to spend on job interviews. So if getting an interview at Goldman Sachs is my number one priority, I might choose to assign 700 points to that opportunity and only 20 points to a job I care far less about. The point is to find a system that corrects the failure, captures the real value the applicant places on that opportunity, and is fair to all participants.
Are there other considerations? Absolutely. We can’t forget that there are some complexities we would need to think through. For example, there would be the possibility (and incentive?) for individuals to cheat on the system. So some students might apply directly to the employers and bypass the HBS system altogether. But there are creative ways our system might correct for this.
What’s worth noticing is that game theory, group sub-optimization, market failure and potential government responses aren’t only ideas that apply to national economies, international fishing grounds, auctioning broadband licenses, and the nuclear arms race. In fact, these concepts are enormously relevant to our daily lives, even right here at HBS.
If we all recognized this and acted accordingly, perhaps we’d all be (literally) better off.