For jobs where competitors are also vying for the business, Mr. Green finds that they almost always end up costing more than he estimates. Why does this occur?
The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants all seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on resumes, but some doubt about fit always lingers when a decision to hire or not is to be made.
o What are the Type I and II decision error costs?
o Which decision error is more likely to be discovered by the CEO?
o How does this affect the HR manager’s hiring decisions?
• Moe Green estimates the cost of future projects for a large contracting firm. Mr. Green uses precisely the same techniques to estimate the costs of every potential job, and formulates bids by adding a standard profit markup. For some companies to whom the firm offers its services, no competitors exist, so they are almost certain to get them as clients. For these jobs, Mr. Green finds that his cost estimates are right, on average. For jobs where competitors are also vying for the business, Mr. Green finds that they almost always end up costing more than he estimates. Why does this occur?
Answer preview For jobs where competitors are also vying for the business, Mr. Green finds that they almost always end up costing more than he estimates. Why does this occur?
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