2020-8 Perceived and Actual Option Values of College Enrollment
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2020-8 Perceived and Actual Option Values of College Enrollment
Western UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmentalues of College EnrollmentYifan GongTodd StinebricknerRalph StinebricknerFollow this and additional works at: https //lr.lib uwo.ca/economicscibc Cf Part of the Economics CommonsPerceived and Actual Option Vallies of College EnrollmentbyYifan Gong. Todd Stinebrickner, and Ralph StinebricknerWorking 2020-8 Perceived and Actual Option Values of College Enrollment Paper #2020-844044WesternCentre for Hitman Capital and Productivity (CHCP) Working Paper SeriesDepartment of Economics Social Science Centre Western2020-8 Perceived and Actual Option Values of College Enrollment
University London. Ontario. N6A 5C2 CanadaPerceived and Actual Option Values of College EnrollmentYifan GongUniversity of Western OntarioTodd StinebriWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmenttion that accompanies sequent ial decision-making. Specifically, by entering college, a student gains I he option to decide at a future time whether it. is optimal to remain in college* or to drop out. after resolving uncertainty that existed at entrance about factors that affect, the ret urn to col 2020-8 Perceived and Actual Option Values of College Enrollmentlege. This paper uses data from t he Berea Panel St udy to quantify the value of this option. The unique nature of the data allows US to make a distin2020-8 Perceived and Actual Option Values of College Enrollment
ction between “actual" option whies and “perceived” option values and to examine the accuracy of students' perceptions. Wo find that the average perceWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmenttement is not due to misperceptions about how much uncertainty is resolved during college, but. rather, because of overoptimism at entrance about, the ret urns to college. In t erms of policy implications related to college entrance, we do not find evidence that students understate the overall value 2020-8 Perceived and Actual Option Values of College Enrollment of college, which depends on the sum of the option value and expect at ions at entrance about the ret urns to college.Keywords: College Education, Dr2020-8 Perceived and Actual Option Values of College Enrollment
opout, Option Value, Learning Model, Expectations DataJEL: 121, 126. .121, D83, D84‘The project was made possible by generous support from the Mellon Western UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmentconference participants at the 2019 Asian Meeting of the Econometric Society, the 2019 North American Summer Meeting of the Econometric Society, and the 2019 Annual Canadian Economics Association Meetings for comments.11 IntroductionAn important feature of past-secondary schooling is the experimenta 2020-8 Perceived and Actual Option Values of College Enrollmenttion that accompanies sequential decision-making.1 Specifically, by entering college, a student gains t he option to decide at a future time (t - f) w2020-8 Perceived and Actual Option Values of College Enrollment
hether it is optimal to remain in college Olio drop out, after resolving uncertainty that existed at entrance (t - io) about academic ability or ot heWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmenthe importance of quantifying the value of this option (Heckman, Lochncr, and Todd, 2006, Heckman and Navarro, 2007, and Stange, 2012). The unique nature of t he data allows an examination of whether students' perceptions alx)ut option values tend to be accurate by allowing, for the first, time, a di 2020-8 Perceived and Actual Option Values of College Enrollmentstinction to be made between “actual” option values and “perceived” option values.For the purpose of illustration, consider a scenario where all that2020-8 Perceived and Actual Option Values of College Enrollment
occurs between h) and r is that, students resolve uncertainty that, existed at entrance. In this scenario, in the alxsence of the option to make decisWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmenttaying ill school until college graduation.2 The value of the option quantifies how beneficial it is to be able to delay the graduation decision unt il after some uncertainty is resolved during the early portion of college. For a student who would not enter college in the absence of the option, the 2020-8 Perceived and Actual Option Values of College Enrollmentexpected lifetime utility at. to of graduating is lower than the expected utility at Z() of not graduating. Roughly speaking, the option value for thi2020-8 Perceived and Actual Option Values of College Enrollment
s student tends to be substantial when, given the magnitude of the (negative) difference between these two expected utilities at to, the information sWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmentting is non-trivially higher than the expected utility at c of not graduating. Similarly, for a student who would enter college in the absence of the option, the expected utility at io of graduating Is higher than the expected utility at /() of not. graduating. Roughly speaking, the option value for 2020-8 Perceived and Actual Option Values of College Enrollment this student tends to 1)0 substantial when, given the size of the (positive) difference between these two expected utilities at Zo, the information s2020-8 Perceived and Actual Option Values of College Enrollment
he will obtain after entering college will often push her across the margin of indifference to a .situation where the expected ut ility at /• of graduWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmenthat is made under uncertainty has been widely accepted in the literature since the seminal work in Manski (1989) mid Altonji (1993).2lf there an' also direct net benefits/costs associated with staying in school between hl and t* (e.g., tuition, utility or disutility of schooling, foregone earnings), 2020-8 Perceived and Actual Option Values of College Enrollment students’ entrance decisions would also depend on these benefits/costs. This could slightly complicate the illustrative discussion in the introductio2020-8 Perceived and Actual Option Values of College Enrollment
n. If students derive substantial utility from staying in school between to and r, in the form of, for example, amenities and consumption benefits (e.Western UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option Va 2020-8 Perceived and Actual Option Values of College Enrollmentertainty during school. However, we note that, our formal approach for quantifying the option value does not rely on the assumption that, t here are no direct benefits/costs between hl and t‘. 2020-8 Perceived and Actual Option Values of College EnrollmentWestern UniversityScholarship@WesternCHc'p WorkingpSpCerstal and ProductivityEconomics Working Papers Archive20202020-8 Perceived and Actual Option VaGọi ngay
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