Year of Publication

2017

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Business and Economics

Department

Economics

First Advisor

Dr. Chris Bollinger

Abstract

It has been common practice in the economics literature to utilize data on observed outcomes and negate what individuals believe or expect will happen in the future. Using responses to a unique set of questions in the 1997 National Longitudinal Survey of Youth (NLSY97) I show that the literature could benefit in several ways by incorporating such data. The leading essay documents a positive association between a student's subjective probabilistic belief that they will complete a four-year college degree and whether or not they attend and complete college. The results indicate the following. First, although overconfident, individuals as young as fifteen are willing and able to answer subjective probabilistic questions concerning education in a cohesive fashion. Second, these expectations are heterogeneous across race, gender, previous academic success, and parent education, and are influential in predicting whether or not they attend and ultimately complete a degree once these characteristics are controlled for. While the magnitude of the effect diminishes when including the standard economic controls, expectations remain significant and play a larger role as the student ages. Parent expectations are also positive and statistically associated with their child's future college success when the student is young but the significance diminishes as the student ages and gathers information related to the costs and benefits of a college degree. These findings indicate that students possess some form of private information that is not being completely captured by the standard variables used by econometricians to predict college attendance and completion.

The second essay uses the NLSY97 to examine how students form and update their college completion expectations as they age out high school. I begin by estimating which factors are utilized by students when forming their expectations while in high school. I find that while these students are taking into account several of the relevant factors associated with college success, they also appear to be neglecting the impact that income and ability have on their likelihood of completing college or are over-relying on poor signals. I then test whether or not students update their expectations in a Bayesian fashion. A Bayesian model is developed. The three ways in which Bayesian students should respond to the acquisition of new information are discussed. Four sources of new information are identified and used in the testing. The testing reveals that students who report either a 0% or 100% chance of completing college do not appear to be Bayesian, but those who report within the 0% and 100% bounds do update in a Bayesian fashion.

The third essay studies the accuracy and alignment of the individual's expectation that they will complete college. I utilize several unique aspects of the NLSY97 to create a measure of alignment based on the predicted probability that the respondent will eventually complete college and their expectation of doing so while either in high school or of college age. I use this measure to answer the following questions. First, are there any observable differences between those who are aligned and misaligned? Next, do respondents become more aligned as they age and progress out of high school? Last, are those who are more aligned at an early age more likely to reach their outcomes? I find that although the majority of students are overconfident in their belief there are considerable differences in alignment based on several observable characteristics and the availability of information. The alignment of student expectations differ based on parent education, ASVAB percentile, school enrollment, and race. Using two sub-samples of different aged respondents I show that as students age and acquire more information their expectation of completing college becomes more aligned with their estimated probability of completion. I confirm this by examining 700 students who are asked their expectations first in 1997 while in high school then again five years later when they either are in college or the workforce. I conclude by showing that those who are more aligned in either direction with what a model of college completion predicts the more likely they are to eventually reach that outcome.

The final essay examines if the private information contained in the student's expectation that they will complete college is associated with future early career earnings. First I note that there are considerable differences in the frequency of reporting, yearly income, hours worked, and hourly wage for those who predict college success and are successful versus those who do not, as well as those who accurately predict that they will not complete college. I then include these expectations in a wage regression and the estimates suggest that when individuals report their college completion expectations between the ages of 15 and 17 they are not associated with future earnings. However, when asked between the ages of 17 and 22 the reported expectations are positively associated with future wages. There is considerable heterogeneity based on gender, whether they reported at one of the three primary heaping points, and the quantile of the wage distribution in which they were located.

Digital Object Identifier (DOI)

https://doi.org/10.13023/ETD.2017.399

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