What economics can tell us about teaching in higher education

This is the second post in a series which looks at higher education learning and teaching through a disciplinary lens. What can the knowledges, theories, methods and practices of particular disciplines tell us about learning and teaching at a university level? In each post, I will be speaking to disciplinary experts from my university and seeking their insights to inform the teaching practices of colleagues in other disciplines. Cross-posted at Teche.

You can read the first post in the series What psychology can tell us about teaching in higher education here.

Today’s post comes from Behavioural Economics, which offers insights into why people do – or don’t do – certain things in the economic sphere.

I spoke with discipline expert Wylie Bradford. Wylie is an Associate Professor of Economics and a Teaching & Leadership academic with significant experience in University governance and policy work.

He is also Macquarie University’s longest-serving Indigenous staff member having been at the university for 26 years. He currently teaches history of economic thought, behavioural economics and environmental economics.

Our conversation taught me some fascinating concepts, such as choice architecture, gain-loss framing and hyperbolic discounting. Wylie uses these ideas to design learning activities and assessment tasks that engage students.

What is behavioural economics?

Simply put, economics analyses the choices that people make and the consequences of choices, especially things like consumption, saving and investment. Traditional models and theories to explain economic choices make assumptions that people are consistent, well-informed, rational, and make decisions based on their best interests.

Unfortunately this is not the case! Behavioural economics takes what we know from social psychology to challenge these assumptions.

The reality is that humans do not make choices by taking into account all available information, evaluating the costs and benefits, and deciding on the best outcome. Humans are inconsistent. We are subject to various heuristics and biases which mean that we don’t behave in textbook ways.

What does behavioural economics tell us about making choices?

We tend to understand making a choice as a change – a movement from one point to another – and we ask ourselves: ‘where do I go from here?’ ‘Here’ is a reference point for evaluating our options and making a choice. The reference point is subjective and varies from person to person.

We know that choice architecture matters. That’s a fancy way of saying that how a choice is presented to someone has an impact on their decision-making. That’s probably the ultimate message of behavioural economics – choice architecture matters because humans make decisions in context. They are not context-free. We make choices that are inconsistent, subjective, and influenced by multiple factors.

What insights can behavioural economics offer about student behaviour?

A key concept is framing, and loss aversion in particular. Loss aversion is the idea that humans put more weight on negative outcomes than they do on positive outcomes. That is, we would be prepared to do more to avoid a given loss than we would to get the equivalent gain. That’s where the reference point comes in. It really matters whether or not people see things as a loss frame or whether they see them as a gain.

Where people see a situation as a loss – so they’ve set a reference point and the see the outcome as being a loss from that – they tend to behave in a more risky fashion. In a gain frame – where the reference point is lower and the outcome is an improvement – then people tend to play it safe.

Wylie describes loss aversion using the analogy of the half-full or half-empty glass in this one minute audio excerpt:

For university students, loss aversion can offer insights into the decision about whether or not to come to campus for a lecture. Images of empty lecture theatres have been doing the rounds on social media. With the option of listening to or watching lectures online, being in the room at university doesn’t hold value for accessing learning materials. If a student applies a loss frame, they a more likely to take the risk of not engaging with the lecture on campus.

In this 45 second audio excerpt, Wylie suggests that coming to campus to attend a lecture is like a half-empty glass:

From a behavioural economics perspective, studying at university is challenging. A student has to decide to spend time doing something now that will pay off at some point in the future. In deciding that is worth doing, they need to consider how they value the future relative to the present. This is where they idea of discounting is relevant.

What is hyperbolic discounting and how does it relate to procrastination?

Hyperbolic discounting is that idea that humans do not evaluate the future in a consistent way.

Wylie explains the concept of hyperbolic discounting in this two minute audio excerpt:

Procrastination is a kind of time inconsistency.

Think about it: imagine you are a student with an assignment due next week on Friday. You plan to work on it on Monday. You make a judgement that this will be enough time. On Monday, you don’t want to start work on the assessment so you tell yourself you will do it on Wednesday.

In other words, the way you envisaged how much it was worth doing the assignment last week no longer applies. You are applying a higher discount rate. The closer you get, the more painful it is to give up your time and the greater the risk you are willing to take. If an assessment task is due at midnight on Friday, teachers will see lots of submissions coming in at 11.59pm.

That’s procrastination. We all do it. Humans are not good at planning over time. We don’t use a consistent discount rate. We are always using a reference point of where we are now compared with a future point. Remember you only ever make decisions in the present, and the reference point for evaluating those decisions is constantly changing.

So hyperbolic discounting is that idea that humans do not evaluate the future in a consistent way. Their evaluation changes the closer they get to a given event in the future. This makes holding on to a plan difficult. This is not a character failing. It is a consequence of being a human moving through time.

How can teachers design assessment with these behaviours in mind?

The way in which assessment is set up will affect the way in which students allocate effort. Assessment should not push students into the path of behaviour that is not going to be in their best interests.

Progressive assessment helps cut across hyperbolic discounting, as does minimising high stakes exams at the end of a unit. Students are not left to make big decisions about how to allocate their time over long stretches of time.

Wylie includes a weekly blog activity in his Behavioural Economics unit. Following an interactive class discussion, students write a reflection on what they think is the most important idea and why. In evaluations of the unit, students say that the weekly blogs are beneficial as a type of assessment for learning. They agree that the progressive approach cuts through the time inconsistency problems they would otherwise face.

This post is just a snapshot of our conversation. Wylie experiments with assessment design based on principles of behavioural economics, such as starting students with a mark of 100% to trigger loss aversion with each assessment task. Many of Wylie’s suggestions run counter to common higher education teaching practice – the problems with practice exam papers, why students don’t turn up for final exams or complete MOOCs, and why exam results should be released before final grades.

Listen to the full 48 minute conversation:

Download a pdf transcript of the full conversation.

Further reading

Arkes, H.R. and Blumer, C. (1985) “The psychology of sunk cost”, Organisational Behavior and Human Decision Processes, 35, 124-140.

Fryer, R,G. et.al. (2012) “Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment”, NBER Working Paper 18237 (http://www.nber.org/papers/w18237)

Hsee, C.K. et.al. (2003) “Medium Maximisation”, Journal of Consumer Research, 30, 1-14.

Kahneman, D. (2011) Thinking Fast and Slow. Farrar, Straus and Giroux.

Kahneman, D. and Tversky, A. (1979) “Prospect Theory: An Analysis of Decision under Risk”, Econometrica, 47, 263-291.

Lowenstein, G. and Thaler, R.H. (1989) “Anomalies: Intertemporal Choice”, Journal of Economic Perspectives, 3, 181-193.

Thaler, R.H. (1999) “Mental Accounting Matters”, Journal of Behavioral Decision Making, 12, 183-206.

Image sources: Hyperbolic discounting. Banner image by Shutterstock.

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