Appl Ex 5i

Application Exercise 5i: Present bias and schooling

  1. In the context of schooling, ‘investment’ relates to student effort and engagement in their education. Whereas, ‘return’ relates to the future benefits derived from their schooling, such as more rewarding/better paying work.


  1. The researchers conducted experiments where they trialed using different incentives to increase student effort/investment in their own education. Basically, researchers wanted to determine which incentives had the greatest impact on students in terms of their engagement and effort with respect to their schooling.


  1. ‘Homo economicus’ or rational economic man weighs up the costs and benefits of each decision/option in order to maximise their utility. ‘Homo economicus’ is unlikely to undervalue the future benefit of their education. By expending maximum effort on their studies, and presumably doing well in school, students are more likely to earn much higher incomes in the future. Therefore, students expending maximum effort on their studies is consistent with rational decision-making and utility maximising behaviour. That is, students who do this are basically acting in their self-interest over the long-term.


  1. ‘Future discounting’ or present bias is a decision-making bias where individuals ‘discount’ the future benefit and ‘overvalue’ the present. To reap the long-term benefits of education, such as a better paying or more fulfilling employment, students have to make a sustained investment in human capital (i.e. developing their knowledge and skills). However, this requires students to exert effort on tasks that have relatively low returns in the near term, such as paying attention in class, completing a daily assignment, or preparing for a practice test.


  1. Incentives offered immediately before and delivered immediately after the task were more effective at increasing student effort. Larger financial incentives ($20) worked better than non-financial incentives (e.g., trophies, medals). These also worked better with older students and slightly better with boys than girls. Further, incentives worked better on maths tests than reading tests.


  1. This question requires students to offer an opinion and will vary from student to student.


  1. This question requires students to offer an opinion and will vary from student to student.