Question

Raj is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Raj based on his stated credentials without verifying them. Two days into the job, Raj's team lead realizes that Raj does not know much of what he claimed to know during the interview. This scenario best exemplifies ____________,

Answer 1

Raj's scenario exemplifies asymmetric information in the labor market, where he had more information about his qualifications than the employer, leading to a misrepresentation of his abilities.

Step-by-step explanation:

The scenario with Raj best exemplifies an issue of asymmetric information in the labor market. Asymmetric information arises when one party has more or better information than the other, which in this scenario is Raj possessing more information about his true abilities and qualifications than the employer.

Due to the asymmetric information, the start-up faced difficulty in accurately assessing Raj's fit for the role and ended up hiring a candidate who misrepresented his competencies. Employers try to mitigate this risk by pre-screening candidates through educational qualifications, references, and accolades which can serve as signals of a candidate's abilities.

Asymmetric information occurs when one party in a transaction has more information than the other party. In this case, Raj has provided false information about his skills and experience, leading to a mismatch in expectations between him and the start-up. This highlights the challenge employers face in screening candidates and obtaining accurate information about their abilities.