Bryan Caplan  

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There's much disagreement in the comments, but I side firmly with everyone who said that the answer is indeterminate because the income and substitution effects work in opposite directions. 

Your unexpectedly high grade is evidence that you earn more points per hour of effort than expected.  Or in other words, the "wage" of studying is higher than you thought. And as every good labor economist will tell you, a higher wage has two effects on the quantity of labor supplied.  There's the obvious substitution effect - you earn more per hour, so you might as well work more.  But there's also the income effect: The higher the wage of studying, the richer you are - and the richer you are, the more leisure you buy.  Net effect: ambiguous.

Complicating the problem is the fact that grades, unlike wages, have upper and lower bounds.  You can't score lower than an F or higher than an A+.  If you did so well on the midterm that you're now assured an A+, you can forget about the substitution effect.

Confession: In the real world, I think that a purely psychological model is at least as illuminating as basic micro.  The model: Succeeding in X makes people like doing X more, and failing in X makes people like doing X less.  The model's prediction is that students who do well will work harder because their high grade makes them like studying the subject more.

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COMMENTS (6 to date)
Dan Carvajal writes:

I'd just assume that my test was in the bottom of the pile. If your grading had diminishing levels of stringency as you went through the pile (like most professors in a marathon of grading) then I benefited by being one of the last graded. If this were the case than I'd study harder because odds are I won't be at the bottom next time. Yet by studying, I'd be improving my odds of receiving an A next time regardless of where my test was in the pile.

Tom Harvey writes:

I was about to quibble with the implication that wages don't have lower bounds, but then I recalled Woody Allen's job at the striptease in What's New, Pussycat?: "Twenty francs a week." "Not very much." "It's all I can afford."

And a careful re-reading of that sentence reveals that you didn't actually imply that, anyway.

Silas Barta writes:

No one answered that the result is probably a fluke, since they don't understand how well they did, and so don't have a good model of how their knowledge maps to correct answers, and so should study more (or at least, not less)?

That was my reasoning when I saw the problem. For me, it's not enough that I get good grades -- I have to know the reason I got a good grade, or I can't expect the relationship between my current epistemic state and the grade to be stable or reliable.

To put it in a different context, if you arrive at a gas station thinking you're almost out of fuel, but you turn out to have a quarter tank, do you drive on without refueling?

Carl The EconGuy writes:

There's so much uncertainty in the relationship between study effort and grades that the right answer to the question is that the safest course is to keep plugging away. You don't know what the sample of questions is going to be on the exam, and you don't know the variation in grading (unless it's a stupid multiple choice exam that has no place in economics, in my opinion -- I never allowed them even when I taught Econ 1 to 350+ students). So you don't know whether your higher grade was due to luck or overexertion. Hence, keep doing what you're doing.

There are exceptions, of course. I scored an A+ in my last course in grad school through the following strategy: look at the class notes, predict the four most likely questions on the midterm and on the final, and study those. I spent maybe one day studying for each exam. My predictions were right, 100%, and I aced both exams. Conclusion: after all my years in high school, college, and grad school I had finally learned what it takes to reach excellence on tests. Then I began writing my dissertation, and have never had any use for the skills I had perfected in class work. I had finally perfected a piece of human capital the value of which upon its achievement immediately depreciated to zero.

Zac Gochenour writes:

I was just thinking "did much better than expected" implied "reached upper bound" although there was no good reason for me to assume this.

But I stick behind my answer. If you do well on something without much input, I think the prevailing psychological effect will be to figure that the input has little benefit. If you take a date to a cheap restaurant and the date goes much better than you thought, you could think of it as a) if I did this well with a 1-star restaurant, just think of how great I could do with a 2-star! or b) restaurant quality isn't that important to this person, I should focus on something else.

So if you did well on a test with little studying, why would you think "just think of how well I could have done with 2 hours of studying instead of 1!" instead of "I guess studying wasn't that important after all?"

Bryan compares the grade to a wage but this isn't the right analogy. The substitution effect of a wage increase induces people to work more because they can equate hours worked with more money. But this is more like finding out you got a big raise despite not putting in any overtime hours (which you thought was a big determinant of raise size) - the most plausible reaction is to think that you overestimated the benefit of overtime hours and underestimated the benefit of work quality, playing golf with the boss, or some other activity.

Sisyphus writes:

I came to a similar conclusion in law school about my MPRE (ethics) exam. California required the highest score of any state (tied with several others), and that's where I wanted to be admitted. So I dutifully studied and did many practice tests.

When the scores came back, I had scored about 1/3 higher than necessary to pass. Higher in fact than anyone else I knew. Unfortunately, there was no benefit to any score higher than passing, such as an award. While others with nearly as high MPRE scores reveled in it, I was quite disappointed in myself. I realized right away how much time and effort I had wasted in preparing for the exam.

For my Bar exam, I studied hard, but did not do absolutely everything I could have, because of my experience in wasting effort on the MPRE. And I passed the Bar, so my strategy apparently worked.

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