overconfidence and coordination failure (part 1)

Human beings are so hilarious, don’t you think?

Early in the morning, I’ve read one of their jokes already.
It reminds me of the problem that make him receive a nobel, Coordination failure of the society, what would happen really if all people like these guys turns out to be the ultimate winner of the job market? Well nothing wrong with that really.

Ok then, first of all this man -à mon avis- is way out of his mind, really, applying for something that- I figure- he doesn’t have any knowledge about it. This is the case of some imperfect market that Akerlof has shown, in his famous melon theorem, and the used car market case. The thing is, the imperfect information of market of jobs creates two fundamental problems, adverse selection, and a moral hazard. In fact there are two ways direction of moral hazard, and adverse selection at one blow.

Consider it this way, neither of the two, the supply side of job (the one seeking for job), and the demand side (searching for employee) have adequate information about each one of them, as a result speculative attack appears to be the only solution. It seems to me that the job information in the adds is not sufficient enough to control this imperfect information, it was clearly defined, that his capacity is not even adequate to apply, instead, this guy apply anyway, even such more qualified guys-that is fresh-undergrad educated guys- would prefer to apply a more appropriate job, instead of applying as a manager.

As a fresh-graduated, -as we all have been there- this guy is desperate to have a job, and he didn’t understand what to do after his college, and then he starting to do some random-non-linier job application procedures, anything, anything he could ever think off, as long as he could find “management” word in the job seeker adds, the problem is they doesn’t even know what kind of job, -even worse- what kind of company he was applying. Therefore there are possibilities that this guy- who think he was totally expert in management, yet his limited experience- would choose the wrong job.

The company on the other hand, will never ever be able to even guess what is the real contribution of the future employee would be to its income, there are possibility it underestimate-or overestimate the marginal productivity of their future employee, which reflected on their wages, furthermore, companies will never be assured by the behavior of the workers, whether they going to be risk averse kind-or –kutu loncat – type of workers?

These imperfection leads to coordination failure in the market, resulting MPL= wage will never be achieved. Companies, naturally developed some other kind of screening process, called-management trainee-(MT in short) well, now they have many kinds of name, it almost the same anyway. Desolately, this MT programs is easily adopted, with relatively low benefit-cost gap, then suddenly fresh grad working as an MT in Bank Mandiri, and MT in some un-identify Company object’s MT would have slight differences. The same thing with the example earlier, the term “manager” and management would be biased to some imaginary working status. In short MT it self is a mystery for jobseekers, and CV’s is still one of the best tool of -fresh-graduate-job-seeker- to lie about their productivity potential. MT’s is also famously recognize for its difficulty and long time recruitment process, this hopefully will reduce this imperfect information would lead to the moral hazard and adverse selection. My conclusion : that’s true for Adverse selection (still in doubt, though) but not for the moral hazard.

Let me tell you a problem of a friend of mine, after completing its degree in an immense success, he tries his luck in MT program in a well known national Bank, as expected he passed all the easy stuff phase, at the last interview, he was a little bit worry at that time, this one is not easy, because interview is sometime a little bit unpredictable-well that’s what interview’s for, but there was some unbalanced information there, my friend has already knew the general questions in the interview, -based on his experience and some other hints from friends-. In the other hand the interviewers knew nothing about him, than what’s happened is the question was easily responded, and finally he was recruited.

Is it the problem of adverse selection solved? Well in this case yes, the bank has even over benefited so much in recruiting him. But not the moral hazard, after some time, my friends then find some other more interesting jobs, and scholarships abroad, as a result the on the job training is now become less favorable, my friends left the company, in the expense of some fine. Now that is clearly a moral hazard problem, he was forced to pay the cost of the company has spent for recruiting and training him, but still, this would be such a completely waste of time and a waste of resources for the company.

Well we’re talking about a bank here, weren’t they supposed to be the one who handling risk? Well they weren’t really good about it don’t you think?

(to be continued....)


dira said...

gue tau banget ini siapa!
interesting post anyway..

Rajawali Muda said...

hehehe..jangan bilang bilang ya dir..hehehe..

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