Grade Inflation Bubble

Problems With Grade Deflation

Feb 13, 2014 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Education, Financial Markets, Government, Households, International Trade and Finance, Labor, Money and Monetary Policy, Regulation, Thinking Economically • 138 Views    No Comments

The number of hours we study is down and our grades are up.

Between 1961 and 2003, full time college students diminished their study time from 40 to 27 hours a week. And yet, they have been getting higher grades. In 1940, 15% of all students got A’s. In 2008, the proportion was 43%. Meanwhile, C’s have become virtually extinct.

According to the NY Times, grades remain elevated:

  • At Princeton, 42% of all grades are A’s.
  • At Yale, 62% of all grades are A’s.
  • At Harvard, more than 50% of all grades are A’s.

Are we smarter? Researchers think not. Instead, they attribute the grades to more “consumer awareness” among professors. Professors who give higher grades are more likely to receive better student evaluations. Their course sign-ups rise. Their students have a better chance of getting into competitive graduate programs.

Almost 10 years ago, Princeton took a stand. Proclaiming a grade cap mandate, they said no more than 35% of the grades in any class could be an A (or an A+ or A-). Now they appear to be backtracking. Not only was the policy leniently enforced but also, I think validly, it is tough to be a grade deflation leader when no one follows you. Applying to grad schools and jobs, students worried that they might be at a disadvantage. And one academic study cites correspondence bias–preferring the GPA to more in-depth information– as the reason that they are right.

There is only one problem. A grade conveys information. If 43% of all grades are A’s, what does it mean when a student gets an “A” in a course? Is that student doing the best work?

This sounds like Brazil.

During the 1950s, Brazil printed a lot of money to pay for building Brazilia, their new capital. With more currency circulating, too many Cruzeiros were chasing too few goods and inflation developed. Expecting it to continue, businesses raised prices, workers wanted higher wages, and consumers made purchases sooner. The result? Price and wage hikes accelerated. Finally, by the early 1990s, the monthly inflation rate was 80%. That meant that during 1 month, the price of a $1.00 carton of eggs would almost double.

Like grades, prices convey information. When a monetary system is working well, a higher price means something. Maybe better quality? Popularity? Shortages? With runaway inflation, Brazilian prices became meaningless.

Brazil finally solved its inflation crisis by introducing an entirely new currency. Will grade inflation require the same solution if we want to “price” human capital more accurately?

Sources and Resources: My original data on studying came from a 2010 Babcock and Marks paper and a NY Times Economix post while my updates are based on a 2014 NY Times brief note on grades, a Washington Post article, this Quartz discussion of grade inflation and this academic study. If you would like to listen to an excellent podcast on Brazilian inflation, do go to this Planet Money podcast.

Please note that several segments of this note first appeared in a 2011 post.

 

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