Uncertainty, Hiring and Subsequent Performance : The NFL Draft

In this paper we analyze the impact of uncertainty on the hiring process. We show the connection between models of statistical discrimination in which uncertainty can work against groups who have less reliable indicators of future productivity and models of option value where uncertainty about future productivity can be beneficial for these groups. We show that these models generate testable hypotheses about the relationship between ex ante hiring patterns and ex post productivity. Testing these hypotheses requires a special data set, one that permits accurate indicators of preemployment valuations as well as post-employment productivity. The data must also not be confounded by a matching problem where the highest valued candidates are matched with jobs where they have the highest probability of succeeding. We chose to use data from the market for professional football players. This market is special because abundant data exist on the preemployment evaluation through the observed draft choice ordering. There are good data on ex post realized productivity as the performance of each player is well documented. In addition, matching occurs through a preset process that does not allow firms with the most resources to gather the highest ability applicants. We provide various estimates of an array of different measures of NFL success, which all suggest that both statistical discrimination and option value influence choices in this market