On the Magnification of Small Biases in Decision-Making

52 Pages Posted: 25 Jun 2019 Last revised: 6 Jan 2021

See all articles by Shaun Davies

Shaun Davies

University of Colorado at Boulder - Leeds School of Business

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance

Brian Waters

University of Colorado, Boulder

Date Written: January 5, 2021

Abstract

We analyze a setting in which a board must hire a CEO after exerting effort to learn about the quality of each candidate. Optimal effort is asymmetric, implying asymmetric likelihoods of each candidate being chosen. If the board has a bias in favor of one candidate, it selects an effort allocation that maximizes the likelihood of that candidate being chosen. Surprisingly, this is still often true even when the board's prior is that its preferred candidate is inferior. A glass ceiling can also arise, in which the tendency to hire favored candidates increases as the importance of the position increases.

Keywords: choice, bias, learning, glass ceiling

JEL Classification: D83, D91, J71, G41

Suggested Citation

Davies, Shaun and Van Wesep, Edward Dickersin and Waters, Brian, On the Magnification of Small Biases in Decision-Making (January 5, 2021). Available at SSRN: https://ssrn.com/abstract=3407651 or http://dx.doi.org/10.2139/ssrn.3407651

Shaun Davies (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

Brian Waters

University of Colorado, Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States
3034921703 (Phone)

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