Education as a hedonic good

Parental investment choices concerning a child’s education are unique.  These choices involve decision behaviour more commonly associated with hedonic goods while simultaneously leading to utilitarian outcomes with objective trade-offs.  The utilitarian outcomes are clear and well documented.  For an individual, increased investment in a child’s education leads to higher future earnings, better health and increased life expectancy. Hedonic goods on the other hand are characterized by choices strongly influenced by emotional conditioning, social positioning and the context of personal expectations (Rayo & Becker 2007).   Hedonic choices are usually infrequent making it difficult to maximize utility through repetitive refinement, Arrow’s (1962) ‘learning by doing’.

The hedonic characteristics of educational choice can be seen in the following comments made by parents describing how and why they choose particular schools for their children in a series of exploratory interviews:

“.. [an] emotional decision of wanting them to have better than we had or as good as we had.”
“I can’t think of any purchasing decision that is so complex, it involves conflicts of values to such as degree.”
“You’re taking a decision that’s so important in somebody else’s life, not just your own.”
“It’s a status thing in the community.  I would want my children to have at least a [university] degree. Undergraduate now, in 5 years it will be a Masters… it’s already happening.”

Like hedonic goods, decisions about a child’s education are infrequent and rarely repeated.  Each stage of the educational investment, such as kindergarten or choice of school, comes with its own set of unique opportunities and constraints.  Consequently the willingness of parents on invest in their child’s education is heavily dependent on prior experiences, their own educational experience or the experience of other parents.  However parents rarely change their investment decisions with each new child, emotional conditioning leads to the novelty of the choice diminishing over time with each successive child.  Additionally like hedonic goods, the value a child derives from their parent’s investment in education is strongly dependent on the investment decisions made by other parents for their own children.

Hedonic goods have the property that utility can at best only be optimised on a ‘satificising’ basis rather than maximized (Rayo & Becker 2007).  Consequently, in the absence of utility maximizing behaviour the discounting of intertemporal choices becomes problematic. Discounting only increases the cognitive burden of an already complex decision making process that deals with incomplete information, individual context and outcomes strongly dependent on the intertemporal decision making of others.  Importantly, on an evolutionary basis not discounting intertemporal choices ensures that parental investment in children is prioritised over other consumption choices and that under-investment in the face of uncertainty and incomplete information doesn’t occur . Thereby increasing reproductive success and increasing the frequency of non-discounting behaviour over successive generations.  However, as a hedonic good such as education becomes more salient the more likely there will be over-investment or impulsive consumption in the absence of discounting constraints.  This is mainly due to hedonic goods being more susceptible to loss-aversion associated with social positioning (Dhar & Wertenbroch 2000).

=====================================

Arrow, K. J. (1962). The economic implications of learning by doing. The review of economic studies, 155-173.

Dhar, R., & Wertenbroch, K. (2000). Consumer choice between hedonic and utilitarian goods. Journal of marketing research, 37(1), 60-71.

Rayo, L., & Becker, G. S. (2007). Evolutionary efficiency and happiness. Journal of Political Economy, 115(2), 302-337.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s