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 →