Basing all of your management decisions purely on statistics is a bad strategy. You're assuming that the weighting of good vs. bad candidate is the same, when they're not.
Hiring a good employee is not nearly as impactful as hiring a bad one. If you can have a strategy that filters out 100% of bad employees, but unfortunately also filters out 90% of good employees, this is preferable to filtering only 50% of good employees, but also only filtering 90% of bad employees. You may have more good employees with the latter strategy, but the bad employees can kill the team.
People have an irrational belief in their ability to tell the difference. This is how one gets such flawed thinking in the first place (regarding priors and probability distributions).
Firms are hierarchy-based entities. "Technical Merit" is about a third or fourth order away from what really drives the hiring decision. Its also very imperfect predictor of actual performance.
The issues is that companies use the term all the time. They want people to believe they were hired for their merit, but merit is almost always 'fit' and not technical in nature. The technical hoops are just a CYA for when the 'fit' doesn't work out (mis-judgement) and they need something to point to as to that is not arbitrary in nature to explain how other people were not hired instead.
Hiring a good employee is not nearly as impactful as hiring a bad one. If you can have a strategy that filters out 100% of bad employees, but unfortunately also filters out 90% of good employees, this is preferable to filtering only 50% of good employees, but also only filtering 90% of bad employees. You may have more good employees with the latter strategy, but the bad employees can kill the team.