The Economics of Science

Over the last half-century, the techniques of science have rapidly permeated into the field of economics. Tools such as game theory, stochastic calculus, and differential equations have been invaluable in analyzing different problems in economics, and in some cases (i.e. the famous Black-Scholes formula) solving them.

Now might be the time that the tools of economics should be applied to the study of science, or the lack thereof, in America. Economics, at a very fundamental level, is the study of incentives. In other words, economists study what drives people to behave the way they do. Economics is not simply a study of money; money just happens to be a convenient way to measure the value of different motivating factors.

In this article, I apply an economic incentive analysis to determine why Americans are not pursuing the sciences as early as high school and as late as graduate studies. There are several key structural problems within our educational and employment systems that I have been able to identify as providing strong disincentives to take science courses.

The first, and most easily identifiable of these problems, is within the differential grading practices in the sciences, humanities and arts. Namely, the sciences have significantly lower grading schemes at both high school and college and much higher failure rates. This creates a strong three-part incentive for students to not study the sciences. Firstly, the lower grades may be damaging to self esteem. Secondly, most colleges award class wide-honors such as valedictorian without normalizing grades across different disciplines, resulting in a median student in the sciences not receiving the same accolades as a median student in the humanities and arts. Thirdly, employers are also known for not normalizing across disciplines, either due to a lack of available information from the college or because they simply do not have time to conduct a detailed subject normalization. This holds true for many college admissions processes as well.

A second problem, although one much more difficult to correct than non-normalized grading schemes, is that of relatively modest salaries in the sciences. While it is true that engineers and scientists, on the average, make good money compared to those in other disciplines, it is also true that they rarely make great money. Engineers never make five million dollars a year, while there are tens of thousands of entertainers, businessmen, and athletes that do. The exception to this, is of course, starting your own company (as in the case of Google), but this does not provide a reason to study science, but rather, simply demonstrates that starting your own company can be highly profitable. The monetary payoff to studying science is lower than that of studying finance and becoming a banker. Consequently, why study sciences?

A third problem, also very difficult to correct, is the public perception of science and scientists, which generally tends to be quite negative. Scientists are often portrayed as geeky, socially awkward and poorly dressed. TV shows such as Bill Nye, Dexter’s Lab, and “Honey, I Shrunk the Kids,” are but several examples of the negative stereotyping as portrayed in children’s programming. This portrayal continues in more adult-oriented programming such as “The Big Bang Theory,” in which turns the characters’ awkwardness and geeky nature is related strongly to their scientific backgrounds and interests.

The incentive structure in America is set up to dissuade students from pursuing studies in the sciences. Contrast this to places like India, where degrees in engineering, physical sciences and medicine are considered the most prestigious degrees and necessary for getting the best-paying and most prestigious jobs (i.e. with foreign MNCs). It is no wonder then, that getting into engineering institutes and faculties in India is so difficult, whereas in America, science classes are depopulated by a plague of disincentives.

It is true that some of these disincentives are difficult to correct (i.e. changing pay structures and media portrayal), as any active attempt to modify them would violate rights such as freedom of speech and free market principles that are part of America’s core values. However, other problematic disincentives such as unequal grading are very easy to correct.

In America today, politicians constantly complain about the dearth of Americans pursuing studies in the sciences and about the consequences that this will have on America’s position in the world. But then again, why should Americans study sciences when the rewards are so unappealing: ridicule as a geek; poor job opportunities and terrible grades?

Inflation Part 2 - Inflation at the Top

In my last post, I only described grade inflation at Dartmouth, but the problem is just as bad amongst the other Ivies. Nearly half of all Harvard students receive A’s in their courses, and approximately 80% have honors conferred upon them at graduation (see: Ivy League Grade Inflation). At UPenn 51% of grades are in the A range; at Columbia 22.3% are A’s (not including A-'s); at Cornell A range grades make up 41% of awarded grades. At Princeton, which has instituted grade deflation programs, by limiting the number of A range grades that could be awarded, 42.9% of grades are still in the A range. More statistics can be found at Gradeinflation.com.

These statistics reveal an unfortunate trend at some of America's top institutions. The very institutions who have world-class brands and don't need to inflate grades still do. A range grades constitute nearly half of all grades awarded, even at Princeton which has attempted to institute a deflationary policy (unfortunately, with little success).

Many Princeton students who are against grade deflation cite that their quota system results in extreme competition between students, as there are a limited number of As to go around and that this competition may be to the detriment of learning. I feel there are three strong responses to this point. Firstly, those who truly care about learning will still learn. Secondly, a B does not destroy their career opportunities because it is widely known that Princeton is attempting to institute this policy. Thirdly, while learning is certainly important for education, I do believe that competition is a necessary part of college and in fact life. Indeed, it is very rare when one is judged on absolute scales; more common is the judging of one relative to ones peers. Quota systems such the one at Princeton, if done effectively, normalize grading. An “A” means you are much better than your peers and a B or B+ says you are average.

While I commend Princeton on taking the first step amongst the Ivies, I do wish it had taken a much stronger stance. For example, officially only 35% of students are supposed to get in the A range, but, in fact, about 43% do, thereby showing that the policy is not strictly enforced. And 35% of students being classified as "excellent" or "outstanding" still seems a little high.

In finance, printing money causes inflation. In academics, printing A’s causes inflation. Let our academic institutions not go the way of Zimbabwe.