June 12, 2012

Signalling vs. Hyperbolic discounting

Bryan Caplan has a lot of thoughts on signaling as the motivator for education.   The idea makes a lot of sense, up to a point.   But let’s  go back and re-assemble my college mental model, as best I can.

So I sign up for a class, and I pay my class’s $1000 tuition up front.  It’s now a $1000 sunk cost.   Let’s say there will be 50 hours of classroom lecture between now and the end of the semester.    Let’s also say, for argument’s sake, that the class is something topical to my expected career path.

And due to illness, the first class is cancelled.  Woo hoo.  Yes, I’ve lost 2% of my class time, but I am quite sure that I can still learn 100% of what I need to learn (because a lot of class is fluff or bookkeeping) in 98% of the time.

The second class is cancelled.  Still happy about it.

Third class is cancelled.  Okay, first week, nothing.  I’m probably still happy, but starting to get a little concerned.

Fourth class is cancelled.  Arg.  Fifth. Arg.   Sixth?  Um, really?   Seventh, Eight, Ninth – ok, at this point, I’m annoyed, and I start complaining.

So, this seems useful – after about 20% of the class has been cancelled, I start to feel a little cheated.   I paid to learn something useful and potentially interesting, and I’m not getting my money’s worth.   If it was all about signaling, I wouldn’t have cared – I would have happily gotten an ‘A’ and never gone to class at all – no one would really be the wiser.

What makes more sense to me is that I accept that the class isn’t a perfectly efficient mechanism for skill transfer, and that a modest amount of “slack” is not going to meaningfully impact what I learn.

Another way to think of it is that the knowledge I gain from a class is not homogenous – not every skill, not every fact is of equal value.  And it’s reasonable to assume that if the class is cancelled, that what “falls off the table” in terms of skills learned are the least valuable skills and the least useful facts – the most critical skills and facts are still taught, just a day later.

Or, to wrap it up in economese:  the marginal cost of a single cancelled class is low, based on the rational expectation that the professor will adjust her schedule and ensure that the most valuable skills are still taught.