Social preferences of Australian parents

The Australian (conservative) government has finally embraced the Gonski school funding reforms. For those outside Australia, ‘Gonski’ (named after David Gonski who lead the review) is a ‘needs based funding model’ where schools with low socio-economics student cohorts receive more funding than comparative schools with a cohort of higher socio-economic students.  Gonski was originally implemented by the previous Labor government and has proven to be extremely popular with the electorate. Even though up to 30% of students in some states (for example Victoria) attend private schools.

Australia has a ‘universal voucher’ system where funding is on a per student basis out of national taxes. Via state governments for public schools and directly for private schools.  Consequently, private schools in Australia are partly funded by the government plus additional fees paid by parents.

It is interesting given Australia’s flexibility in school choice – mixing public and private education – that there is very strong support for a funding model that re-balances natural inequities within an education system due differences in wealth.  In contrast to the USA where electoral support for a progressive funding model for education seems to be lacking. The difference between Australia and the USA may have something to do with the social preferences of parents.

Social Preferences

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Identity: Influence of social interactions on education outcomes

Choices in education by their very nature are dependent upon social interactions. These social interactions are complex and cognitively demanding due the number of variables involved, and problems of incomplete and asymmetric information. Consequently, ‘‘the ability to sort people (or objects) spontaneously and with minimum effort and awareness into meaningful categories is a universal facet of human perception essential for efficient functioning’’ (Bodenhausen, Todd and Becker 2006). A person’s identity defines who they are with regards to their social category, the ‘in-group’ (Akerlof and Kranton 2010). Having a common ‘identity’ in social interactions significantly reduces the amount of information asymmetry present with regards to individuals within the group, thereby decreasing the complexity of decision making.

The same heuristics that are valuable in reducing complexity and cognitive load can also lead to bias-confirming assessments of inter-group relations giving rise to stereotyping. The perception of an individual’s identity status via social cues can reinforce confirmation biases associated with maintaining a state of identity threat (Darley & Gross, 1983). Identity threat is one of the mechanisms that lie behind persistent achievement gaps in education outcomes (females: Spencer et al., (1999); African-Americans: Steele and Aronson (1995); students from low socio-economic backgrounds: Croizet and Claire (1998)). However, being a socially context dependent behaviour, identity is localised and does not persist beyond its context frame. For example, low achieving boys when changing grades experience large gains when leaving behind old identity norms and expectations (Dweck et al., 1978). For an explanation of the decision processes that underlie poor academic achievement due to identity threat (see Cohen & Garcia, 2008). Continue reading

Self-efficacy and the Pygmalion Effect

In any decision involving investments in education there needs to be a consideration of the expected return with respect to expected risk over time. Critically, this requires an assessment of an individual’s own or in the case of parents their child’s ability to achieve an optimal return on their investment in education. The greater the confidence an individual has in achieving a goal, the more resources they will invest. This perception of one’s own ability is called self-efficacy and the greater the belief in one’s self-efficacy the more productive the individual’s efforts (Eden, 1988). However, the complexity of choices in education mean that perceptions are likely to be affected by cognitive biases leading to a problem Benabou and Tirole (2003) termed imperfect self-knowledge.

In this regard, the general availability heuristics (Tversky and Kahneman 1973) play a key role in how individuals resolve information uncertainty and make inferences about their own ability and the perceived ability of others. There are considered to be three general purpose heuristics underlying many intuitive judgements under uncertainty: availability, representativeness, and anchoring with adjustment (Gilovich & Griffin, 2002). These intuitive heuristics are highly efficient decision rules that achieve a good outcome quickly and with little cognitive effort but at the expense of sizeable type 1 errors. For example in social groups, individuals are usually mindful of behaviours that lead to exclusion from a group. Misperceiving a behaviour as leading to ostracism is psychological costly, requiring effort, but is significantly less costly than missing cues that lead to ostracism (Williams, 2007). Continue reading

Self-control and social trust

In Mischel et al.’s (1972) famous ‘marshmallow test’ four year olds were given a choice between eating a marshmallow (or similar treat) now or waiting and receiving an extra marshmallow at the end of the experiment. The marshmallow was placed on a table in front of the children and left unattended to maximise temptation. In this way self-control is seen as a finite resource which can be depleted. In a follow-up study a positive correlation was found between delayed gratification and SAT scores, with the correlations stronger for quantitative test scores than verbal test scores (Shoda et al., 1990). Importantly, studies have shown that self-control is a better predictor of academic outcomes than IQ (Duckworth & Seligman, 2005).

However, self-control is also shaped by social interactions, particularly perceptions of trust. In a modified marshmallow experiment Kidd at al. (2013) added a preceding stage where perceptions of researcher reliability could be shaped. In this pre-stage, children were promised new crayons to draw with while they waited for the marshmallow experiment. One group received the new crayons as promised while the other group received old, clearly used crayons. Children who received the promised new crayons waited significantly longer than those who received the old crayons. Suggesting that self-control is strongly shaped by reasoned beliefs of the reliability of promises made by the researchers. Michaelson et al. (2013) found similar results for experiments with adults that showed social trust having a causal role in the willingness of individuals to delay immediate gratification.

from:
Leaver, S. 2016. Behavioural education economics. Routledge handbook of behavioral economics, ed. R. Frantz, S.-H. Chen, K. Dopfer, F. Heukelom, and S. Mousavi, 379–391.

 

 

Preference stability and choices in education

One of the unique problems of choices in education is the length of time between a choice being made and completion of the choice.  For instance, when choosing a school the choice remains active from the time a child enters school until they finish many years later.  In this way choices in education are more complicated than those normally associated with experience goods. Characteristics of choices made may change over time as the child grows. The choice needs to be continuously experienced in order make judgements about whether it is the ‘right’ choice.

ENDOGENEITY IN CHOICE PROCESSESchoice-model

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How parents solve the ‘wicked’ problem of choosing a school

research poster ‘How parents solve the wicked problem of choosing a school’ has been accepted for display at the ‘Beyond Research – Pathways to Impact’ Conference, 21-23rd February 2017 in Melbourne, Australia.  (Social Change stream)

As the poster is formatted for A0 print size, the original PDF can be viewed here:  How parents solve the wicked problem of choosing a school

how-parents-solve-the-wicked-problem-of-choosing-a-school

ABC Radio National segment on choosing schools

I was interviewed on ABC Radio National about my research into how parents choose schools for their children. The radio segment Navigating the seas of schooling aired on Thursday 9th February 2017.  The ABC interviewed a number of researchers about choosing schools in Australia and their interest in my research focused on the behavioural economics of choosing schools.  In particular, how parents solve what is an inherently complex choice process limited time and information.

The ABC RN program link Navigating the seas of schooling provides a full audio podcast.

 

15% universal loan fee for HECS/HELP

The Grattan Institute released a report calling for a universal 15% loan fee to be added when student incur a higher education HECS/HELP liability.  Reasoning behind a 15% loan fee is that it would go towards offsetting the interest-rate subsidy students receive as a result of their HECS/HELP liability being indexed at the rate of CPI (currently 1.3%).  That is, a real rate of interest that is zero. As opposed to the Commonwealth Government actual cost of funding which is closer to 2.75% (current 10 year bond yield).  In 2015/2016 this interest rate subsidy was around $550million for the year on total outstanding HECS/HELP liabilities of around $40billion. Bruce Chapman also wrote an article for The Conversation supporting the idea of a 15% loan fee.

Below are my reasons why a 15% universal loan fee is a far better idea than alternative proposals for reducing the funding burden of HECS/HELP. Not just the interest-rate subsidy that makes HECS fair for all types of students with many different backgrounds but also the implicit understanding that some students will fail to repay their HECS liability due to simple bad luck and the uncertainty of life. Continue reading

Debt-free path to innovation

debt-free-path

Not-for-Debt (NfD) companies: A new exemption class for innovation start-ups.

There are already a number of different regulatory types of firms available, such as sole-trader, partnerships, private companies and public companies. However, a unique characteristic of start-ups firms is that they are more likely to fail than succeed. There is no company type available within the current regulatory framework that implicitly recognises this risk profile of start-up firms.

Malcolm Turnbull wants to reform corporate regulation – particularly to soften Australia’s rather punitive bankruptcy provisions – to create new start-up friendly business laws. The National Science and Innovation Agenda Report proposes to reduce bankruptcy from three years to one year, allow directors to trade while insolvent, and stop counterparties from terminating dealings with insolvent companies.

Corporate regulation was never designed or intended to promote new business growth, but rather to control existing and particularly large, mature businesses. For the most part, it does this successfully. However, Turnbull’s proposals fail to make a fundamental distinction between two very different types of firm failure. For start-up firms, particularly in the technology sector, a high failure rate is not only normal, it is often desirable. It’s a sign of experimental undertakings and rapid learning.

Changing the bankruptcy period from three years to one isn’t much of an incentive and won’t change reputational risk associated with the stigma of bankruptcy. Bankruptcy appears on credit reports for five years and remains on a public National Personal Insolvency Index for life. Although directors of insolvent firms are protected from liability for a company’s debt, the risk of significant penalties remain. Individuals can be barred for five years from directorships if they have been a director of more than two insolvent companies within seven years. Being a director of a company that trades while insolvent can lead to criminal penalties and potentially being liable for debts incurred while insolvent.

Applying the current bankruptcy and insolvency framework to innovation firm start-ups – where failure is treated as an exception – makes no sense. Continue reading

Six keys to making high school choices

An article on my research in the Sun Herald, Sydney, 7 Aug 2016

Understanding the behavioural economics behind choosing a school can save parents a lot of time, writes JAMES MELOUNE

Education is the bedrock of a prosperous society. However the responsibility for getting education “right” and wealth of school choices can be bewildering for some parents.

The behavioural economics behind decisions parents make has prompted Sean Leaver, a former banker, to survey parents. Leaver, a PhD candidate at Melbourne’s RMIT University, has surveyed more than 800 families. His thesis, Behavioural Economics and the Complexity of School Choice, has found there are six keys to high school choice.

1.        PRIORITISE CRITERIA

Leaver’s study found that parents fall into one of five groups, based on what they feel is most important for their child’s development. Continue reading

Applying big-data techniques to small-data: Latent Semantic Analysis of interviews investigating reasons for parents’ choice of school

A paper I’m working on at the moment.

Applying big-data techniques to small-data: Latent Semantic Analysis of interviews investigating reasons for parents’ choice of school

ABSTRACT    In economics, preferences are revealed from the measurable attributes of actual choices. However, choices in education are complex. Many factors underlie the decision processes associated with how parents choose a school for their children. In-depth interviews investigating how and why parents choose a particular school for their children suggest that there are a wide variety of attributes playing an important role in this process.  For economic analysis these attributes are not easily identified and measured within a traditional revealed preference framework. In this study I apply latent semantic analysis to a set of 22 open-ended interviews exploring how and why parents choose a particular school for their children to extract latent choice attributes in a measurable form.  Latent semantic analysis is used to elicit key words from these interviews to reveal those attributes  associated with a parent’s actual choice of school. These words, such as ‘encourage’ and ‘support’, represent particular choice mindsets that frame a wide range of possible choice attributes into a smaller bundle of evaluated attributes that can be mapped to a parent’s actual choice.  Latent semantic analysis is used to first calculate the semantic distance between individual interviews and a set of target words.  Semantic distances are then statistically analysed for clustering subject to school-type (such a public, independent, Catholic and government selective). These semantically revealed words can then be analysed in a more traditional economic framework as trade-offs between particular preference attributes. Importantly, this analysis indicates that there exist distinct groups of parents who are motivated by different choice mindsets but ultimately choose the same type of school. Some of the advantages and disadvantages of applying big-data techniques to small-data sets of relatively large open-ended text responses are discussed.

Some readings (& podcast) putting Randomized Control Trials (RCT)s into perspective

Like incentivised laboratory experiments Randomized Control Trials (RCTs) are all the rage in economics.  RCTs are commonplace in the health sector starting with Pasteur’s first controlled trials 200 years ago. While application of RCTs to social sciences is relatively recent.

However, by their very nature social sciences involve researching social groups and networks where information is distributed and co-ordinated with relative ease and frequency.

This creates a unique problem for RCTs in social research because it is very difficult to construct experiments that are able to completely seal information within evaluated units.  Importantly, the closer the social networks of individuals the more likely there will be information contamination and that individuals in the ‘control’ condition will act on this information. Continue reading

An Incentive Compatible Model for Higher Education deregulation

Given the level of opportunism occurring in the Australian Vocational Education & Training higher education sector since deregulation (uncapping places & fees), recent articles:

I think it is worth reblogging my Senate submission (Feb 2015) suggesting a new incentive compatible model for a deregulated higher education market where education providers have ‘skin in the game’.  This Senate submission provided a solution to what I saw as a fundamental misunderstanding of the risks associated with deregulating higher education within the current policy framework, published as an opinion piece in The Australian (Oct 2014):

This was followed up by an article calling for universities to have more ‘skin in the game’ (Mar 2015):

I presented this model at the ANU Forum on Higher Education Financing, Friday 13th August 2015, on the topic ‘Should universities have skin in the game?’.

This model can be applied to any type of higher education provider where students have access to government administered income-contingent loans. Whether providers be universities, vocational, professional bodies or dedicated postgraduate institutions.  This model can even be applied to specific types of courses which are regulated separately, such as proposed Australian university flagship courses.

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What drives increases in University fees? Bennett hypothesis vs Baumol’s cost disease

Over the last 15 years, increases in higher education fees have accelerated and are now rising faster than any other part of the economy.  Outstripping even the rising cost of medicine and health care.  And yet we see no meaningful improvements in productivity or GDP growth over the same time period.  Since 1978, the cost of higher education has increased in the US by 1,120% – more than 11 times.  This graph from Bloomberg clearly illustrates the anomaly of higher education fee inflation.

 Bloomberg tuition (s)Source: Bloomberg, Data: Bloomberg Labor Department

 What’s driving higher education fees higher? 

What we see in the wider economy does not justify an explanation that fees are increasing in line with improved earnings expectations.  There is some improvement in earnings overall but productivity and GDP are not rising anywhere near as fast to justify this optimism.  If we had a matching 1,120% increase in productivity or GDP over the last 30 years the world economy would be a lot more rosier place than it is at the Continue reading

Breaking down the myth that we need competition to make education policy work

An article published in The Australian today Push for universities to share students‘ discussed some of my views regarding the lessons we have learnt from deregulating the schools sector and the consequential impact on the ‘market’ dynamics of educational institutions (i.e. how universities behave).  One of the myths put forward as a reason for deregulating fees within the higher education sector in Australia is the (misguided) belief that competition in student fees will lead to institutional diversity.  However, when it comes to experience goods in education, student (parent) risk aversion leads to a strong preference for universities (schools) to offer the largest range of subjects possible given available funds.  This leads to the crowding of efficiencies from specialization and potentially sacrifices educational quality if the competition is intense.

The main driver of student (parent) risk aversion is the high switching costs associated with changing misinformed choices.  This happens a lot with experience goods where there is little opportunity to repeatedly test choices.  Choices in education are completely different to consumer purchases of milk or bread for example.  Where a bad choice is low cost and easily rectified. Continue reading

ANU Forum on Higher Education Financing

I will be presenting at the ANU Forum on Higher Education Financing, Friday 13th August 2015, on the topic ‘Should universities have skin in the game?’ based on my Senate submission ‘An Incentive Compatible Model for Higher Education deregulation’

Details on the conference: Continue reading

Behavioural Education Economics

My academic paper on the ‘Behavioural Education Economics’ is now up on the web.  This will be a chapter in a forthcoming handbook on Behavioural Economics, due out Sep 2016.

ABSTRACT    The purpose of ‘Behavioural education economics’ is to understand the psychological factors influencing student performance and educational choices. One of the key insights of behavioural education economics is that educational decision making is characterised by choices which are usually not repeated and rely heavily on heuristics to solve complex choices in the absence of prior learning. At the heart of behavioural education economics is an understanding that academic outcomes are malleable. That investment decisions associated with education are primarily driven by non-cognitive behaviours and cognitive biases that affect participation in education and subsequently motivations to commit resources to these investments and maintain these choices over time. The focus of this paper will be on three key non-cognitive behaviours associated with choices in education that impact the quality of investments in education: self-control, self-efficacy and identity.

Leaver, S. 2016. Behavioural education economics. Routledge handbook of behavioral economics, ed. R. Frantz, S.-H. Chen, K. Dopfer, F. Heukelom, and S. Mousavi, 379–391.

An ungated version of the paper can be accessed here:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2634331

Problem of rational adaptive behaviour in at-risk youth

Heller, S. B., Shah, A. K., Guryan, J., Ludwig, J., Mullainathan, S., & Pollack, H. A. (2015). Thinking, Fast and Slow? Some Field Experiments to Reduce Crime and Dropout in Chicago (No. w21178). National Bureau of Economic Research.

ABSTRACT This paper describes how automatic behavior can drive disparities in youth outcomes like delinquency and dropout. We suggest that people often respond to situations without conscious deliberation. While generally adaptive, these automatic responses are sometimes deployed in situations where they are ill-suited. Although this is equally true for all youths, disadvantaged youths face greater situational variability. This increases the likelihood that automaticity will lead to negative outcomes. This hypothesis suggests that interventions that reduce automaticity can lead to positive outcomes for disadvantaged youths. We test this hypothesis by presenting the results of three large-scale randomized controlled trials (RCTs) of interventions carried out on the south and west sides of Chicago that seek to improve the outcomes of low-income youth by teaching them to be less automatic. Two of our RCTs test a program called Becoming a Man (BAM) developed by Chicago-area non-profit Youth Guidance; the first, carried out in 2009-10, shows participation improved schooling outcomes and reduced violent-crime arrests by 44%, while the second RCT in 2013-14 showed participation reduced overall arrests by 31%. The third RCT was carried out in the Cook County Juvenile Temporary Detention Center (JTDC) in 2009- 11 and shows reductions in return rates of 21%. We also present results from various survey measures suggesting the results do not appear to be due to changes in mechanisms like emotional intelligence or self-control. On the other hand results from some decision-making exercises we carried out seem to support reduced automaticity as a key mechanism. Continue reading

Behavioural economics and the complexity of school choice

This is the abstract for a seminar I presented to the Victorian Dept. of Education and Training on the 13th April 2015 on behavioural economics and the complexity of school choice.

ABSTRACT  The purpose of this seminar is to present research investigating the decision architecture of how parents choose a school for their children through the lens of behavioural economics. The research focuses on providing insights into the following key questions : To what extent does active choice exist and is there choice inertia? What are the decision rules parents use to overcome complexity and limited opportunities for learning? What are the choice attributes that motivate a parent’s choice of school?  Do parent behave differently when making educational choices for their children compared to other economic decisions? And is there a relationship between the behavioural components of the decision making and the type of school chosen?  The talk will also focus on how behavioural economics can inform research design. Using exploratory interviews of parents to observe economic decision making in the field. Relating these observations back to economic theory to generate possible explanations for choice behaviour. And then subsequently testing these hypotheses by going back into the field and collecting quantitative evidence.  Both the implications of my results and the general application of behavioural economics to education policy will be discussed.

Call for unis to carry HECS loans risk

I was interviewed yesterday on my submission to the Australian Senate inquiry into higher education deregulation.

“Vice chancellors are being disingenuous at the moment. They are freeloading and are comfortable with the government taking all the risk. They need to get out of the sandpit and into the real world,”

The attached pdf is a copy of the resulting article in The Australian today.

Call for unis to carry HECS loans risk

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