Higher Cost,Lower Validity and Higher Utility: Comparing the Utilities of Two Tests that Differ in Validity,Costs and Selectivity

Traditional approaches to comparing the utility of two tests have not systematically considered the effects of different levels of selectivity that are feasible and appropriate in various selection situations. For example, employers who hope to avoid adverse impact often find they can be more selective with some tests than with others. We conducted two studies to compare the utilities of two tests that differ in costs, validity, and feasible levels of selectivity which can be employed. First, an analytical solution was conducted starting with a standard formula for utility. This analysis showed that for both fixed and variable hiring costs, a higher-cost, lower-validity procedure can have higher utility than a lower-cost, higher-validity procedure when the selection ratios permissible using the two procedures are sufficiently (yet realistically) different. Second, using a computer simulation method, several combinations of the critical variables were varied systematically to detect the limits of this effect in a finite set of specific selection situations. The results showed that the existence of more severe levels of adverse impact greatly reduced the utility of a written test with relatively high validity and low cost in comparison with an assessment center with lower validity and higher cost. Both studies showed that the consideration of selectivity can yield surprising conclusions about the comparative utility of two tests. Even if one test has lower validity and higher cost than a second test, the first may yield higher utility if it allows the organization to exercise stricter levels of selectivity.