Saturday, May 25, 2013

Teaching with Online Resources

Jodi Beggs wrote an interesting post on the subject of massive open online courses (or MOOCs) in which she argues that large online courses can be a boon for instructors as well as for students.  Here is an excerpt:
Granted, they are likely mostly appropriate for standardized courses such as calculus, economic theory, organic chemistry, and so on (as opposed to more customized or discussion-based courses), but MOOCs offer a huge potential to offer not only lecture content but also university-level problem sets and exams, and therefore would not only enable instructors to redefine their role from authority figure to student advocate but also allow them to switch over from play-by-play to color commentary, if you will. (Everyone knows that the color guys have way more fun.) MOOCs, properly documented on college transcripts, could also help employers compare students across institutions and enable lower-ranked schools to credibly convey that they offer the same level of instruction as higher-ranked institutions.
There are two dimensions to her argument about the role for using online resources.  Effective instruction must balance (1) content versus context, and (2) authority versus approachability.

On content versus context, Beggs' analogy to the difference between play-by-play and color commentary is insightful.  Good instruction gives both, but it is more fun to give color commentary.  As I see it, Beggs argues that well-designed online resources can expedite the delivery of content while leaving more time for context.  In addition to being more fulfilling, this can be more effective for students as well.

On authority versus approachability, I can see her point, but the tension between being an approachable student advocate and being a credible authority figure is unavoidable.  A well-designed course needs to hold students accountable to a timeline, as well as assign consequences for effective learning.  Being a credible authority figure is essential to a high-quality course, and this is true whether or not the instructor uses online materials.  That said, the tradeoff between being an authority figure and being a student advocate is an important one.  Authority manages extrinsic incentives while student advocacy manages intrinsic incentives to learn the material, and it is optimal to motivate students internally and externally.

All in all, I think Jodi's post is worth reading.  Online resources can be extremely useful in augmenting the classroom experience, and instructors shouldn't shy away from using them.  On that point, Jodi and I are in agreement.

Thursday, May 23, 2013

Student loan interest rates, collateral, and incentives

Xan had a nice follow up post  to my post on  the option value of attending college where he (partially) takes up the question of why people major in things that do not produce value for society.  It is an interesting perspective that you should read. This post tackles another angle of the value of college debate from recent weeks: student loan debt and things the government can do.

According to some sources, student loan debt is greater than $1 trillion, which ranks second to only mortgage debt when we tally the amount of debt held by U.S. consumers.  As tempting as it is, we should be careful in drawing comparisons to mortgage debt.  For one, the most important distinction between student loan debt and mortgage debt has to do with collateral.  What can the bank take away from the borrower if the borrower defaults on the loan obligation?  If you take on a loan to purchase a house, the bank or loan collection agency can take your house if you stop making payments.

In the case of student loans, the loan is used to invest in the student's human capital, thereby becoming part of the student.  This is not a bad thing per se, but banks need to have some assurance in the event that the student defaults.  It doesn't help that the investment becomes attached to the student, and thus, cannot be directly used as collateral.  The current alternative to collateral is wage garnishment, where the bank or federal government can recoup the loan by taking 10 to 25 percent of the student's wages until the loan is paid back.  This is some recourse for the lender, except that it depends on the student having a job, and it can result in much slower repayment.

Thus, student loan debt is riskier for the lender than a mortgage loan, and as a result, it should not be surprising that the higher-risk student loans have a higher interest rate.  After all, this is the primary cost of the loan, and from the standpoint of a bank, there is good reason to charge a higher interest rate if repayment of the loan is less likely.  Moreover, delinquent student loan repayment has been on the rise:

Two credit agency studied this week show that delinquency rates on student loans are climbing.
According to the more recent TransUnion study, more than half of student loans are in deferred status where the loan payment has been temporarily delayed. Deferred loans now represent 43.5% of all student loan balances.
Enter Elizabeth Warren who is proposing to reduce student loan rates, not to the same rate that home buyers get, but to the rate that banks get (which are even less risky than homeowners):

Warren views her proposed interest rates as a subsidy, as is evidenced by the interview in this article:
“Keep in mind, every time the Federal Reserve opens its window to let the largest banks borrow at [point seven-five percent] it’s not even scored on the budget—they are getting a subsidy. They get away with it, and it’s a subsidy that remains entirely hidden in the federal budget. But [for some reason] there is a resistance to give our kids some kind of break. Surely we care about our kids as much as our banks,” Warren said.
Even if you think that there are good reasons to subsidize higher education (one perspective, another), Warren's proposal will encourage students to take on more debt as they pursue higher education.  Moreover, it is not obvious that it is efficient to subsidize higher education beyond the current levels of subsidies.  To put it another way, here's the Daily Show's Aasif Manvdi:


Now, I'm not arguing that going to college is a bad idea, but to make the right decision, students need the right incentives.  There is some truth to Xan's point that college is an environment that tricks students into thinking that everything is low cost.  Artificially low interest rates won't help that perception.

Tuesday, May 21, 2013

Carelessness and Matching

Somehow, I made my way through my American public education and my subsequent personal mission to become well read* without having read The Great Gatsby.  With the new Gatsby movie and associated discussion with friends about it, my non-reading of Gatsby was something I needed to remedy.  Fortunately on Sunday, I found myself in an airport bookstore with a high demand for an entertaining book to read.  And, there was The Great Gatsby, just begging for me to read it.  I snatched up the book, and began reading it immediately.  

I loved the book -- so much that I finished reading it the next morning.  Anyway, here's a quote from the book that I found to be unusually economic (reflecting a discussion between Nick and Jordan), and hence, this was my favorite segment of the book.
(Nick) "You're a rotten driver," I protested.  "Either you ought to be more careful, or you oughtn't to drive at all"
(Jordan) "I am careful."
"No, you're not."
"Well, other people are," she said lightly.
"What's that got to do with it?"
"They'll keep out of my way," she insisted.  "It takes two to make an accident."
"Suppose you met somebody as careless as yourself."
"I hope I never will," she answered. "I hate careless people.  That's why I like you."
A couple of economic concepts stuck out from this segment of dialogue.  First, in plenty of contexts, you're much more likely to meet careless than careful people, just by the nature of carelessness leading to more encounters with people.  In context, Jordan is much more likely to encounter another version of herself than if she were a careful driver because careless people tend to have more encounters.

Second, it is interesting to think about the conditions under which opposites would attract in carelessness.  If careless people prefer matching with careful people, there's no guarantee that the careless will match with the careful in equilibrium.  After all, careful people also like meeting other careful people, too.  What really matters is whether careless people like meeting careful people more than careful people like meeting other careful people.  In this vein, plenty has been written about who matches with whom and why.  This is just an interesting context in which it comes up.

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*After high school, I made it my personal mission to read classic books that are part of popular/intellectual discourse.  I read Dante's Inferno, 3 books by Orwell (re-read Animal Farm, read 1984, read Down and Out in Paris and London, and started Homage to Catalonia), The Odyssey and The Iliad, among others.

Friday, May 17, 2013

Tale of a Dropout: Steve Jobs

In light of the debate about college education and what we take from it, here is an excerpt from Steve Jobs' commencement address to Stanford graduates in 2005.  If you have not read his commencement address, it is worth the time to read the whole thing (in consumption value).
I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out? 
It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: "We have an unexpected baby boy; do you want him?" They said: "Of course." My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college. 
And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn't interest me, and begin dropping in on the ones that looked interesting. 
It wasn't all romantic. I didn't have a dorm room, so I slept on the floor in friends' rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example: 
Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating. 
None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, it's likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.
When I visited Reed College, I was impressed with how much the college affiliated with Jobs, even though he did not get a diploma from Reed.  Then again, Reed College is a unique place, and Steve Jobs was a unique person.

Wednesday, May 15, 2013

Unpopular Views and Politics

Bryan Caplan has an insightful post that fleshes out a simple model of voting and conformity.  Here is an excerpt:
Consider a world where 80% of people are Conformists, 10% of people are Righteous, and 10% are Reprobates. The Conformists are epistemically and morally neutral, so they believe and support whatever is popular. [...] 
What happens? There are clearly two equilibria: one good, one bad. If the true&right is popular, then the Conformists and the Righteous have 90% of the vote, so the true&right prevails. If the true&right is unpopular, then the Conformists and Reprobates have 90% of the vote, so the false&wicked prevails. 
Now suppose that in this world, you are trying to assess an individual's virtue. In the good equilibrium, identifying the virtuous is hard. Only 1 out of 9 supporters of the status quo is genuinely virtuous. The vast majority support the true&right out of sheer convenience. Identifying the vicious, however, is easy. In the good equilibrium, all supporters of the false&wicked are vicious. 
The mirror image holds in the bad equilibrium. Identifying the virtuous is easy: Everyone who supports the true&right despite their unpopularity is virtuous. Identifying the vicious, in contrast, becomes hard. Only 1 out of 9 supporters of the status quo truly qualifies. The vast majority of supporters of the false&wicked don't support it out of conviction. They support the false&wicked to fit in.
There's an interesting tension here.  To know who is virtuous, we need a bad equilibrium.  Personally, I would rather not know who is virtuous, and have the good equilibrium.  From this standpoint, the model makes me question why we want to know who has virtue.  Edit: In the good equilibrium, we know for certain who is wicked.  This could have value because we could use that information to root out the wicked.  That said, it is probably better to just take the model as a positive theory of discovering vice.

Setting the measurement of virtue/vice aside, Caplan's model can easily be interpreted more generally and applied to different contexts.  For example, you could relabel the groups as Moderates (conformists), Rightists, and Leftists.  All you need are 3 groups: one set of conformists, and two sets of set-in-their-ways groups.  With moderates, rightists and leftists, Caplan's theory becomes a model of partisanship.*

Caplan's theory implies that if you want to determine if someone is Right of center of Left of center, just look at their unpopular positions.  Note that this model of partisanship avoids the "Hansonian caveat" -- there's no particular virtue with siding on the left or right, per se.  Hence, it is less clear why conformists would abandon conformity to signal some sort of virtue.

In my mind, the main criticism of this theory of partisanship is that moderates are not simply conformists, trying to vote for whatever is popular.  Rather, it is possible that they actually have moderate beliefs.  Nevertheless, such unreality never stopped anyone from exploring the implications of a model.  In the words of Milton Friedman (page 36):
Everything depends on the problem; there is no inconsistency in regarding the same firm as if it were a perfect competitor for one problem, and a monopolist for another, just as there is none in regarding the same chalk mark as a Euclidean line for one problem, a Euclidean surface for a second, and a Euclidean solid for a third.  The size of the elasticity and cross-elasticity of demand, the number of firms producing physically similar products, etc., are all relevant because they are or may be among the variables used to define the correspondence between the ideal and real entities in a particular problem and to specify the circumstances under which the theory holds sufficiently well; but they do not provide, once for all, a classification of firms as competitive or monopolistic.
There is always a simplicity-realisim tradeoff in modeling.  Caplan's model is quite simple, and that is a big reason why it is useful.

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* You could also label the conformists to be bandwagon fans, and define the two groups as die-hard fans of Rival 1 and Rival 2.  This is a simple theory of rivalry in sports.  There's no particular virtue on either side of the divide, but you can tell who is a die hard fan by who attends the games and wears the team colors during a losing season.  Easy intuition, yes, but it is interesting seeing a model of sports rivalry that can be fruitfully applied to both politics and virtue.

Monday, May 13, 2013

On the Worth of College

In the past week or so, there has been a lot of media discussion about whether college is worth it.  I have more to say on the topic than just one blog post can muster, and this is the first post where I try to make sense of what has been said in the media.

A key piece of the media discussion is the announcement of Bruce Bennett's new book, "Is College Worth It?" in which he contends that only 150/3500 colleges are worth the investment.  Here's a quote from a recent article:
"It does not seem that much learning goes on in higher education," Bennett told Fox News's Sean Hannity Monday night. 
"Listen, we have some of the world's greatest colleges and universities. But at the same time, it is true that many students go to college, spend $15,000-$50,000 a year in tuition; halfway through, half of them drop out, about 46 percent drop out. When they graduate, the class of 2011, for example, half of them are unemployed and half of that half is underemployed, and they've got a lot of debt."
Bennett arrives at his conclusion that college is (generally) not worth it by computing rates of return for the typical graduate of each college.  Those with a positive rate of return are worth it, those with a negative rate of return are not. 

In a separate opinion article, Bennett softens the point, but then reveals the flaw in a simple rate of return calculation.
Ultimately, a college education can still be a good investment, but it is not necessarily the right choice for everyone.

Students need to make smart decisions about their capacity for academic work, the job prospects for their major, and how they will pay for their education.

Students should make sure it’s really worth it based on their interests and life goals before taking the plunge.
I appreciate Bennett's sentiment that a diploma is not worth it for everyone (it is not), but this excerpt reveals a critical assumption behind his work: students can know whether a college degree is for them before college.  This is a too-simplistic view on the value of college, and it instills too narrow of an approach to attending college.  Namely, students should not go to college with their minds made up.

A big part of the value of going to college is "finding oneself."  To take a personal example, I went to college to study business and computer science because those were the hot / high return fields at the time, and of course, I liked computers.  I was naive with no idea what I was doing with these fields, and after a semester, I had serious doubts about whether they were for me.  

Fortunately for me, I did not need to have my mind made up in advance.  College was a time for exploration, for thinking about the future, for discovering what kind of work I would do, and for finding myself.  I found myself in my second semester at Montana State in my Honors Economics course.  At that time, I decided that I would study economics (with the intention of pursuing a Ph.D. someday) instead of business/computer science.

Backing out of this personal experience, my experience of finding myself is different from others.  For other students, taking the economics class could be what convinced them that economics is not for them, and they go on to study psychology instead.  Still others could use that same economics class to learn that getting a college degree is not worth it.  Regardless, none of these students know what path is optimal going into the class, and that is critical.  A huge part of the value of college its option value: i.e., finding out (a) is a diploma is worth it for me? (b) what kind of diploma is worth it for me?  

Even if the answer is that the student should drop out and do something else, going to college is valuable because it helps the student figure this out.  Viewed with the appropriate amount of uncertainty (both on aptitude and interest), it is unrealistic to start from the assumption that it is possible to determine whether college is worth it before taking the plunge.

Put another way, it is not necessarily a mistake to have taken a risk and lost. If there was a significant upside to the gamble, the fact that people experienced a significant downside to taking the gamble is not evidence that the gamble was not worth it.

Saturday, May 11, 2013

Why worry about income inequality?

Here's an interesting post by Don Boudreaux in which he explains the extent to which he cares about income inequality (spoiler: not very much):
Worrying about income (or wealth) differences as such has always for me smacked of childishness.  It’s envy elevated into public policy.  I’m sure that it has something to do with how I was raised, but the very thought of fretting about how much money other people make relative to what I make has always seemed to me to be grossly impolite, anti-social, pointless, corrosive of one’s character, and in horribly bad taste.  This was so for me for as long as I can remember, even when my income was very low by American standards.
It is not a surprise coming from Cafe Hayek to hear that he supports remedying inequality of opportunity rather than remedying inequality of outcomes, but the post is the most well-written defense of this position I have read in a long time.  As the excerpt above hints, his argument relies on both practical and moral tenets.  Regardless of the extent to which you agree, this post is worth a read.

Saturday, May 4, 2013

Mortgage, Marriage, Information, and Stress

A couple of posts ago, I linked to an interesting article on recent trends on the timing of buying a house.  It seems that more young couples are buying a house together as a step before getting married.  That article argued that there may be some benefits to mortgage before marriage.  Namely, it forces you to have conversations about finances, children, and other priorities before tying the knot, and that's a good idea.

But, is there another side to advice about mortgage before marriage?  Dave Ramsey (the real estate guru) recommends to avoid house hunting as newlyweds, and he forbids it as nearlyweds:
Also, if you're married, you should be married for at least a year before you buy a home. Don't add the stress of a home purchase to a brand new marriage, and never buy real estate with anyone you're not married to.
Having recently gone house hunting, I can say that Ramsey is right that the process of finding a house with someone is stressful.  It might not be bad advice, but whether you think mortgage before marriage is a good idea depends on your theory of marriage.

  • The The One Theory marriage suggests that the two partners are meant to be together, and that the stress of buying a house is an external stimulus that can threaten the meant-to-be pair's long-term happiness.  Stress on a marriage or a pre-marriage relationship is something to be avoided.
  • An equally viable alternative theory -- The Information Theory -- is that dating, mortgage, and marriage is a process by which we discover information about our partner.  You learn a lot about your partner when you go through something as involved as buying a house, and it is a good idea to learn as much as possible before fully committing to that other person.
Ramsey's advice seems to stem from The One Theory of marriage.  According to Ramsey, you've found The One, so don't mess it up with a bunch of stress at one time.  The Time article seems to stem from the Information Theory.  House hunting is a great way to learn as much as you can about your partner in a short period of time.  If trying to buy a house together breaks you up, maybe you shouldn't be getting married.  Also, depending on the timing of the information reveal, house hunting might help young couples learn that they're not meant to be before they're locked into a long term commitment of any kind (house or marriage).

From an economic standpoint, I'm not sure which theory of marriage is correct.  Regardless, there's no one in the world I'd rather buy a house with than my wife.

Wednesday, May 1, 2013

On canned laugher and optimal talks

Recently, I read an interesting critique of Influence by Cialdini... by Xan.  Some background: Cialdini rails against laughter tracks (the canned laugher in the background of sitcoms) for manipulating us by telling the audience what is supposed to be funny.  From that perspective, we are being manipulated, but Xan offers an interesting counterpoint.
Isn't it a good thing if people find a show funnier? The entire point of a show is to entertain us. If we enjoy it more with canned laughter, what's wrong with that? 
And besides, there's a symmetry here. A sitcom with laugh track is funnier, a sitcom without one is less funny. Which one is "correct"? Neither --- they are just different. The former is more like being in a theater with a bunch of other people, the latter is more like being at home alone. Yes, you truly are at home alone, but the whole point of television is to simulate events that aren't actually happening in your home. It's all just pixels and machine-made sound waves. 
Social laughter, even simulated, increases our enjoyment because we are social animals. And that's nothing to scoff at.
Throughout the post, I find it interesting how Xan walks the line between manipulation and entertainment.

In somewhat related news, Jeff Ely recently wrote a post on how to organize a talk.  Starting with the premise that you cannot hope to have your audience's full attention.  He argues that an effective talk is one that gives your audience a sign to coordinate when they should be paying attention.
Now you probably won’t be bringing that sign with you. But you can achieve the same effect by using the way that you stand, the way that you talk, and the style of your slides. When you are saying something important you speak slowly and loudly and you walk up and down the room and make eye contact and your slides have just one or two things on them so that they are easy to read and process. 
You are telling them with your demeanor that now is the time to listen. Later, when you are saying something less important you lower your voice, go faster, stand still and read off your busy slides. You are doing these things to tell your audience that now is the time to think, talk or doodle and rest up for the next important moment.
Taking a cue from Xan's post, perhaps seminar speakers could do one better by adding the seminar equivalent of a laughter track (friends in the audience who ask scintillating questions throughout the talk).  

Ely's post deals with the intensive margin: Given a fixed amount of audience attention, how do I make the most of it?  Effective speakers should also pay attention to the extensive margin: how do I engage my audience to increase how much attention is paid to my talk?  Effectively wielding social cues and signs can improve a talk along both margins.  From the perspective of an audience member, this is rational.  If the speaker begins a talk by grabbing my attention with something important to say, I tend to reward the speaker with greater than average attention throughout the rest of the talk.