How to hire smarter than the market: a toy model

1 · Erik Bernhardsson · Jan. 13, 2020, midnight
Let’s consider a toy model where you’re hiring for two things and that those are equally valuable. It’s not very important what those are, so let’s just call them “thing A” and “thing B” for now. For one set of abilities, the scatter plot looks like this: The assumption here is that A and B are drawn from a 2D-Gaussian with a mild positive correlation. I crammed a whole lot of stuff into this plot: the scatter plot shows the distribution of A vs B, and the two histograms (on top and on the righ...