Economics of network

5. Suppose you're working at a company, and your boss asks you to explain what went wrong in a recent hiring decision. The company decided to interview two candidates for a single job. Let's call the two candidates A and B. A hiring committee was formed to attend the interviews and decide which of the two candidates to hire. Everyone on the committee was interested in making the best possible hire, but after the interview it was clear that members of the committee had different ideas about which of the two candidates was the best choice. When the committee met to make the final decision they decided to go around the room and ask each person on the committee to announce which of the two candidates they believed to be the best choice for the company. In fad, everyone on the committee said that candidate A seemed to be the best choice, so the offer was made immediately to candidate A without additional discussion. Now that candidate A has worked for the firm for a while it is clear that candidate B would have been a better choice. (a) Your boss has asked you to explain how the committee members could have unanimously supported candidate A when she was reasonably certain that before the committee meeting at least some of the members of the committee thought that B was probably the best choice. What can you tell her? (b) Can you suggest another procedure that the committee could have used that would have revealed the initially differing opinions about the candi-dates and which may have resulted in the actually better choice of candi-date B? 6. You have to make a choice between two alternatives. These alternatives might be, for example, whether to believe a rumor, which of two competing products to purchase, which of two competing political candidates to vote for, or which of two possible technologies to adopt for the new firm that you have just started. Unfortunately, you do not know much about the potential benefits of choosing either of the alternatives. We represent this formally by saying that you believe that each of the alternatives is equally likely to be the best choice. However, there are experts who do have information about the benefit (to you) from each of the alternatives. Experts are not perfect; they just know more than you do. We represent this formally by saying that each expert has some imperfect, private information about the benefit of each alternative and we assume that all experts are equally good in evaluating the two alternatives. The experts have made public recommendations about which of the alternatives is best. (The experts cannot convey their information directly. It's just too complex, and if they tried you would not know what to do with their statements anyhow.) Experts make recommendations sequentially, and each expert knows what all of those who have announced their recommendation earlier have chosen.  

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