In looking for the best workers over time, firms must balance “exploitation” (selecting from groups with proven track records) with “exploration” (selecting from under-represented groups to learn about quality). Yet modern hiring algorithms, based on “supervised learning” approaches, are designed solely for exploitation. In this paper, we view hiring as a contextual bandit problem and build a resume screening algorithm that values exploration by evaluating candidates according to their statistical upside potential. Using data from a Fortune 500 firm, we show that this approach improves the quality of candidates selected for an interview, while also increasing demographic diversity, relative to the firm’s existing practices. The same is not true for traditional supervised learning-based algorithms. In an extension, we show that exploration-based algorithms are also able to learn more effectively. Together, our results highlight the importance of incorporating exploration in developing decision-making algorithms that are potentially both more efficient and equitable.
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