Overconfidence & tuition fees

Traditionally, universities have selected the smartest applicants. But could this change, so that they select the stupidest, in one sense at least?
This is the thought raised by a new paper by Arnaud Chevalier. He points out that there is enormous variation amongst graduate earnings. For example, among those who graduated in economics in 2003, the 10% of highest earners three years later earned almost 80% more than the lowest 10 per cent of earners. The differences were even bigger for law, IT, maths or accounting graduates. And in almost all subjects, the differences exceeded 60%.
You might think these differences are the inevitable result of differences in graduates’ ability. But these control for A level results, university attended, parents’ social class and class of degree, and so control for a lot of ability.
I suspect - based upon no more rigorous evidence than the experience of my contemporaries - that a chunk of these differences reflect Smith’s compensating advantages: some graduates trade off a high salary for more rewarding work.
Nevertheless, the likelihood is that such differences also reflect an element of luck.
Which raises the question: faced with such a large variation in the returns to a degree, who is going to be willing to pay £9000pa in tuition fees?
Not the average graduate; Dr Chevalier estimates that a fee of less than £5000 is the maximum he or she would pay.
Instead, it is the most overconfident - those who overestimate their chances of becoming a top earner.
Now, in one sense this is not catastrophic because overconfidence about one’s ability is to some extent a self-fulfilling belief; people who are overconfident are believed by others to be more able than they really are.
In another sense, though, it threatens (or promises) a radical change. Traditionally, being a university graduate has been a signal of ability. But it might become the opposite - a signal not of ability but of a particular form of irrationality. Having a degree might become like owning a Porsche - others think: “look at the prat who’s paid for fortune for that.”
This is, of course, consistent with the view - expressed more in the US than the UK for now - that education is in a speculative bubble.

Comments

[Innocent Abroad]

This suggests to me that far more radical than any organised political practice would be a decision not to take people at their own estimation.

Perhaps someone could organise a pledge to this effect on a website and we could all wear a lapel badge. Not sure what the design of it should be, though: any suggestions?

[Nick Rowe]

"Instead, it is the most overconfident - those who overestimate their chances of becoming a top earner."

More precisely, it is those who are most overconfident in their ability to *improve* their chances of becoming a top earner by going to university.

Someone who was irrationally pessimistic of their chances of getting a good job without going to university would also pay a lot to go.

[Keith]

Your subjective confidence or lack thereof is probably unconnected to moral goodness or the opposite or to narrow intelligence. So it is unfair to damn the people involved. And as earnings post graduation involve luck and other choices not solely about money valuation it is the system of demanding fees that is stupid. Any one potential undergraduate and their parents are being invited to enter a lottery. Will the prise be worth the ticket? They will just have to throw the dice.

[gastro george]

Are the education-bubblers serious? I was under the impression that bubbles were bid up by the buyers in a more-or-less open market. I don't know if that's the case with fees in the US but, in the UK, prices are being set by universities under cost pressure from the government. Prices are being forced up by the government in a vain attempt to make a market - that's not a bubble to me.

[Bruce]

(At least some) MBAs already have the Porsche effect.