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.

 

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

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

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

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

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.

‘Determinants of Parent School Choice’ Online Survey – the Results

This post will provide updated links to results as I post them. Posts will initially focus on straight forward results associated with specific questions, before proceeding onto more complex statistically analysis of relationships between questions. Continue reading

Universities as an economic ‘club good’ – the importance of research and why some institutions fail

Universities are characterised, compared with other tertiary education providers, as having a significant amount of resources dedicated to research activities.  Typically, an elite university will direct 40-50% of its academic resources towards research.  This is despite the fact that university research is cash-flow negative even after all government grants and commercial revenue are taken into account. As a rule, an optimistic expectation would be that for every two dollars spent on research you may get one dollar back as either grants or revenue. Typically, it is closer to 3:1.  The financial viability of universities rests on its ability to generate teaching revenue.  Teaching undergraduates and postgraduate coursework students.  Curiously, a strong link between the university research undertaken and the courses being taught is not necessary to ensure strong student enrolments and financial viability.  The reason for this is the key role research plays in generating strong reputational benefits for the university.

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Experimental evidence of ‘Intergenerational Egalitarianism’ – Hauser et al 2014: Cooperating with the future

Hauser, O. P., Rand, D. G., Peysakhovich, A., & Nowak, M. A. (2014). Cooperating with the future. Nature, 511(7508), 220-223.

ABSTRACT: Overexploitation of renewable resources today has a high cost on the welfare of future generations. Unlike in other public goods games, however, future generations cannot reciprocate actions made today. What mechanisms can maintain cooperation with the future? To answer this question, we devise a new experimental paradigm, the ‘Intergenerational Goods Game’. A line-up of successive groups (generations) can each either extract a resource to exhaustion or leave something for the next group. Exhausting the resource maximizes the payoff for the present generation, but leaves all future generations empty-handed. Here we show that the resource is almost always destroyed if extraction decisions are made individually. This failure to cooperate with the future is driven primarily by a minority of individuals who extract far more than what is sustainable. In contrast, when extractions are democratically decided by vote, the resource is consistently sustained. Voting is effective for two reasons. First, it allows a majority of cooperators to restrain defectors. Second, it reassures conditional cooperators that their efforts are not futile. Voting, however, only promotes sustainability if it is binding for all involved. Our results have implications for policy interventions designed to sustain intergenerational public goods.

The key insight of this experiment is that a system based on simple democratic rules can overcome the tendency of small groups of people to rationally over exploit resources in the current generation leading to resource collapse.  Given that there will always be some probability that there will be individuals who rationally have no regard for future generations, resource collapse is (almost) certain to occur.  However, the authors show that simple democratic voting rules binding all participants are effective in restraining this rational, generationally selfish, behaviour.  Consequently, resources are sustained over multiple generations of participants.

This paper dove-tails with a two of key areas related to intergenerational investment & the role of government.

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How student peers influence university attendence

Status Quo/Default option:  Once the majority of students in a peer group aspire to university (herding behaviour and information cascades) the more likely the remaining students will treat going to university as the default option, being the status quo (default option: Johnson & Goldstein 2003, status quo: Samuelson & Zeckhauser 1988).

Incomplete information & pooling benefits: All students face varying degrees of uncertainty in their decision making about university. Individually, each will possess varying levels and types of information about the benefits and constraints of attending.  The peer-effect on a student’s preference to attend university arises from the benefit of pooling information to reduce uncertainty.  As more students aspire to and explore the opportunities of university, more information becomes available to the pool of students overall.  As uncertainty decreases the more risk-adverse students will be inclined to attend university.

Socially Desirable: As more students within a peer-group aspire to university, the more salient the preference becomes. At a certain point, social desirability leads to an increased positive correlation of the preferences to attend university across the peer-group. Continue reading

The drunk neo-classical economist and the lamp post

Alan Greenspan’s recent article ‘Why I don’t see it coming’ reminded me of the ‘drunk and the lamp post’ joke:

A drunk loses his keys and is looking for them under a lamp post. A policeman comes over and asks what he’s doing. “I’m looking for my keys” he says. “Where did you lose them?” the policeman asks.  “I lost them over there”. The policeman looks puzzled. “Then why aren’t you looking for them over here?” “Because the light is so much better here”.

For neo-classical economists these ‘lamp posts’ are mathematically elegant and tractable models, sometimes supported with econometrics, which lead to unambiguous conclusions. While these models are illuminating and logically consistent within themselves they are frequently ‘mugged by reality’, as Greenspan puts it, making these models a poor basis for forecasting.

This is an ‘observational bias’ where people focus their attention on areas leading to easily illuminated results.

An example in banking & risk management is the over reliance on risk models such as VAR which, while mathematically complex, produce an ‘output’ which is easy to interpret and explain. This leads to an overconfidence in mathematical models measuring a bank’s risk exposure while the more dangerous risks, in hindsight after the GFC, are the organisational behavioural risks which tend to be largely ignored (in the shadows).  Remembering that ‘model risk’ arises from cognitive biases affecting how models are constructed and interpreted, rather than mathematical error per se.  Well known mega losses where sophisticated risk models were mugged by behavioural reality are Societe Generale’s rogue trader (USD$7billion), Morgan Stanley’s ‘hedging error’ (USD$8.7billion) and the bankruptcy of Lehman Brothers.  I worked for 2 of these 3 banks and turned down an offer from the third.

There is also an ‘observer bias’ where how we see things is not independent of our own condition, preferences and context.  Neo-classical economists tend to view all individuals in their models as being as rational and mathematical able as themselves even though in reality individuals tend to have a wide range of cognitive ability.

“We don’t see things as they are, we see them as we are.” Anaïs Nin

A rather brutal joke I often heard in banking, mostly from traders, was:

Q. What do you call an economist making a forecast?

A. Wrong.

The complexity of educational choices made by parents for their children

At a high level, choice decisions relate to trade-offs between consumption and savings, now and across subsequent time periods subject to constraints and uncertainty.  For parents, educational choices for their children are constrained by the parents’ income, time and regulations, and subject to high levels of uncertainty over very long time frames. Parental choice relating to investments in their children’s education only really occurs in the broad range of the socio-economic ‘middle class’. For the very wealthy, choice is the default of ‘only the best’ which requires little to no effort in decision making despite the cost of the education itself. Parents in low socio-economic conditions lack both the time and experience to research education options and the monetary resources to capture opportunities as they arise, leading to an acquiescence to the default choice of no action.

Rational choice theory suggests that parents are utility maximisers who make decisions from clear value preferences and can be relied upon to make decisions in the best interests of their children (Becker & Tomes 1976, 1979). Yet in deciding which school a child should attend, under rational choice conditions, a parent is required to make a series of complex intergenerational and intertemporal choices that would challenge seasoned economists. Educational choices are predominantly path dependent, subject to imperfect information and in most cases irreversible. Ordinary parents however, need to make these decisions with little training and with limited time to evaluate options. Instead, parents rely on a suite of behavioural heuristics in order to achieve a good outcome for their children.  Individual choice is also context dependent, subject to the experiences of parents, their expectations of the future, a duty to their children and emotional attachment.

How can a parent make optimal decisions in the face of so many possible choices and outcomes? Choices which are necessarily sequential and irreversible once made. To overcome the complexity of choice, humans have developed decision strategies which allow shortcuts to be taken to achieve a ‘good’ outcome in the face of incomplete information and limited time for evaluation. These heuristics, intuitive decision rules, allow mathematically hard problems to be solved under restrictive conditions where a good outcome is achieved at the expense of a perfect outcome. For a parent, a perfect outcome is only possible by chance and impossible by deliberate calculation.

While heuristics are ‘quick & dirty’ solutions, they draw on highly sophisticated underlying processes. Tversky & Kahneman (1983) testing the conjunction rule in likelihood rankings using the classic ‘Bill & Linda’ experiments showed that there was no difference between naïve and sophisticated participants. Experiments undertaken by Gigerenzer & Goldstein (1996) tested the effectiveness of fast and frugal decision heuristics, such as ‘take the best, ignore the rest’, against sophisticated statistical estimation strategies, such as Bayesian networks. Their research showed that fast and frugal heuristics did not fall too far behind a Bayesian network approach. More interestingly, as the quality of available information used for estimation decreased, heuristic strategies became more effective when compared with the more sophisticated strategies.

The complexity of the decision architecture associated with making choices, combining both rational choice and behavioural components, is illustrated in the ‘Choice Process’ diagram below:

The Choice Process

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Becker, G. S., & Tomes, N. 1976. Child Endowments and the Quantity and Quality of Children. The Journal of Political Economy, 84(4), S143-S162.

Becker, GS & Tomes, N 1979, ‘An equilibrium theory of the distribution of income and intergenerational mobility’, The Journal of Political Economy, 1153-1189.

Tversky, A & Kahneman, D 1983, ‘Extensional versus intuitive reasoning: The conjunction fallacy in probability judgment’, Psychological review, 90(4), 293.

Gigerenzer, G & Goldstein, DG 1996, ‘Reasoning the fast and frugal way: models of bounded rationality’, Psychological review, 103(4), 650.

McFadden, D 2001 ‘Economic Choices’, The American Economic Review 91(3): 351-378.

Academic rank order more important than academic ability in determining educational outcomes

A recent discussion paper by Richard Murphy and Felix Weinhardt at the London School of Economics, summarized in the article ‘Top of the Class’, suggests that a student’s academic rank in a school relative to other students strongly influences “non-cognitive skills such as confidence, perseverance and resilience” which in turn have a big impact on future academic outcomes.  This conclusion is based on a survey of some 15,000 UK students and matched against student test scores.  The authors found that rank order in primary school had a material effect on academic outcomes at secondary school.

Essentially, if there are 2 students of the same academic ability at primary school but one is ranked in the top 1/4 of an average school and the other ranked in the bottom 1/4 of an elite school, when the students get to high school the student with the high rank order in primary school will achieve materially higher test scores than the other.  This goes against the accepted wisdom of the importance of the student peer effect where is generally held that it is better to be in a school amongst high achievers than at a school with not so high achievers.

They suggest that the mechanism by which this divergent outcome occurs is that by being in top of the school cohort the student becomes more confident and thereby enjoy learning more, consequently leading them to spend more time improving their skills.  What is particularly interesting is that this rank order effect is more pronounced, four times more, for boys than for girls.

Personally this confirms my anecdotal observations growing up in country NSW. I could see that we always had our above average share of great sports people. I put this down to confidence through achieving and the mind set associated with a habit of winning from a young age. A benefit of being a part of many small population groups, thereby giving more of a chance to be a ‘winner’. Logically this effect had to be strong to overcome the benefits big cities like Sydney have in their advantage of large numbers generating, statistically, more genetically exceptional sports people.

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