On the Magnification of Small Biases in Decision-Making

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