Philip Oreopoulos on behavioral economics for education

Professor Philip Oreopoulos from the University of Toronto is our ERID visitor this week. Today he gave a talk on applications of behavioral economics in economics of education.

Individual rationality is one of the fundamental assumptions widely held in traditional economic theory. This assumption allows economists to place model decision-making process as an optimization process given a well-defined objective under a set of constraints.

But when individuals don’t think rationally, many modeling frameworks need to be revised. Professor Oreopoulos specifically mentioned the dual process theory in psychology and how that justifies the present bias. Interested readers can refer to this book by Daniel Kahneman.

A few signs of system I show up in the behavior of students while they learn. They tend to focus too much on the present, sometimes sacrificing long-term benefits in favor of temporary pleasure. They rely too much on routine. They focus too much on negative identities. It is worth noting that social identity can exacerbate present bias by perpetuating irresponsible lifestyles through social networks.

The speaker provided some evidence that education could change preferences. Studying requires efforts, but the payoffs are only realized gradually over the life course. Therefore, to get an education students need to overcome their tendency to “enjoy the present” without considering long-term consequences of bad time management.

Behavioral economics is increasingly used to analyze education policies. One important topic is how much does the availability of college admissions information help disadvantaged students depending on whether they actively seek the information. Individual aspiration and family resources play vital roles in determining the overall impact of increasing availability and transparency of the information on college choices.

One of my favorite pieces of research on this topic is done by Caroline Hoxby and Sarah Turner. They mail packages containing personalized information to disadvantaged students on college admissions statistics and scholarship availability, thereby increasing their awareness of the affordability of selective colleges. As a result, the number of applications to more selective colleges increased and so does matriculation in those colleges. This suggests that simple, inexpensive information interventions can make a big difference in the decision-making process of disadvantaged individuals.

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