> because > I strongly suspect that 1) people have almost no idea how much it will > be worth for them to continue in school,
Gee, now you're sounding Austrian! "No idea"? Come on. Just look at how parents groan when their kids talk about the low-earning majors like sociology, and rejoice when they do CS and the like. There's certainly some plausible guesstimating going on, though I agree it could be improved if people knew the PDV formula and used Excel (as I make my labor undergrads do). >>>Note its the _parents_ in your story who are groaning, not the kids. OK, I'll admit that the "no idea" was based on what I know it was like when I was going to college in the 70s. However, it is still my impression after 13 years of teaching college that the vast majority of college students not only have never done a present value computation about their decision to go to school, but have never seriously considered the alternative of not going to school - - what they could do, how much they could make, what their lives would be like etc. > 2) most people's decisions > about schooling have to do with how much they like it vs. how much they > like whatever the alternative is (and are therefore fairly short > sighted), How much they like it is in turn heavily influenced by how good they are at school - an indirect channel for ability bias. >>>Fine. I'm happy to acknowledge that ability affects decisions to go to school, but my contention is that the decision is more of a present trade-off decision than a future vs. present trade-off as the standard economic analysis maintains. At least my experience with school is that most college kids are looking forward to $$$. They almost never compare current fun of school with current fun of work. >>>Are you thinking only of economics majors? Business and economics majors (some) think this way. Do you think the average lit major is? Psych? Pol. Sci? 3) 2) is heavily influenced by whether mom and dad are willing > to pay for you to go to school (or someone else is), and True, though it's not clear what the relevance is. >>>Standard economic model assumes that most of the costs are forgone earnings. Mom and Dad paying for school should be small potatoes (since you can always go to a state school at low cost). My impression is that this factor ways in people's decisions way out of proportion to its economic value. > 4) whether mom > and dad are willing to pay depends on their own views about the return > to education and their bequest motive and has nothing to do with any > discount rate. ??? Isn't their "view of the return to education" a view about the discount rate? >>>Well I suppose if you believe in perfect capital and education markets with completely rational and identical consumers it would have to be, but otherwise why would you think that the return to education would have anything to do with an individual's discount rate? But more to the point, I doubt that parents are making any sort of intertemporal comparison in paying for kids school. How many do you think have thought "Well, if I invest the money I'm paying for the kids school in corporate AAAs at 6.5% his income from my bequest will be $XX,XXXX in 20XX whereas if I pay for his school it will be..." No way. What they think is "better to teach a man to fish than to buy him fish..." or something like that and they fork over the bucks to XXXX U. Not the economic model at all. - - Bill — William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
