Educating Arlene Rationally
The passionate nerds in Revision Labs’ Learning 2.0 Lab have been brewing a new, more effectively customized yet community-inclusive model for organizational learning. I tweet. But given how much of their fancy philosophizing flies around the office, I thought a tangential blog about how people make decisions around education could be appropriate.
I’ve been working with Professor David Harrison and SkillUp Washington on an upfront financing mechanism to help King County’s working poor onto a path of sustainability through education and training. While that sounds boring and tedious (to me initially, at least), the essence for this need stems from the oft-overlooked heterogeneity of decision making models across socio-economic classes.
What? I know, right? Different people make decisions differently, and they all (to some extent) deviate from 
those archaic models of “rational decision-making” that we swallow and regurgitate in every Economics 101 class.
While we all respond to signals slightly differently, there’s a dramatic difference between how the low-income make decisions and weigh trade-offs and their middle and upper-class counterparts. Cognizance of this alone can help us better customize public policy toward funding around training and education for the working poor.
Arlene’s Decision Making Model
“Arlene” is our avatar. She is the traditional socio-economic underdog; over 25, under-skilled, working but earning annually less than 200 percent of the federal poverty line. Arlene struggles to satisfy her basic needs, and the opportunity cost of enrolling in school and remaining actively enrolled is high. The conventional incentives traditional students are motivated by (well paying job, financial security, social status) to persist through each semester are not the same for Arlene, who can’t consistently afford the time it takes to obtain a degree. More importantly, her expected value of a degree as far lower, given a lifetime of internalizing social stigmas and/or low-paying, crummy past employment.
The oft-cited “rational” decision-making model is not ubiquitous. Divergences from the standard model are most obvious among the low-income, who must choose daily between basic necessities like food and rent. Their immediate future is mired in uncertainty, let alone long-term future, much unlike their middle and upper-class counterparts.
Low-income, often ethnic minorities and/or women, in King County (and everywhere) possess so few tools and resources that the constraints and preferences they juggle in making the most “rational” decision are frequently misaligned with a sustainable future.
Greater income volatility for low-income individuals increases their need for short-term credit. Arlene’s time preferences and discount rate on future earnings is higher than middle and high-income earners; she can’t afford to prioritize education, given the many imminent constraints working poor face. Arlene’s expected value of future full-time employment is diminished by daily uncertainties, and consequently far lower than what we may “rationally” predict. Education has been shown to lower one’s discount rate in decision-making and permit the self-discipline that financial sustainability demands[1].
The inability to “afford” to wait to consume A (food, rent, childcare) over B (books and transportation to school) by Arlene and her counterparts reinforce barriers to graduation and full-time employment. Arlene’s continued enrollment and active participation in community college and training programs is one of the most crucial building blocks of self-sufficiency, yet it is highly fragile and easily disturbed. And the reason it is so fragile is because of the above: she can’t afford time and the expected value of that time spent on education is low, shrouded by uncertainty and past experiences. Promises just aren’t as incentivizing for Arlene as they are for you and me.
An upfront financing mechanism that lowers the discount rate of re-enrolling next semester and raises the expected value of earning a degree would help clear Arlene’s path to self-sufficiency by making it more obvious and more certain. A pay-as-you-go system that financially supports Arlene’s ambitions to become, for example, a registered nurse by providing partial upfront wages (that she would earn as an RN) would give her both the financial stability and confidence in the future necessary to complete the steps needed to do so. It is precisely this lack of ready resources that reinforces the traditional barriers to entry to sustained training and employment. This financing is an investment in human capital. The outlay cost is the price of Arlene’s increased certainty in earning a degree that secures a good job. The reward is the development of human capital, satisfying demand for high-demand industries, and the social and economic spillover effects of having the working poor move out of poverty.
We propose helping Arlene along the way to employment and bringing future financial rewards closer to home, before securing a job, and allowing her to repay the investment over time and below market-rate interest, post-employment.
[1] Bauer and Chytilover: The Impact of Education on Subjective Discount Rates in Ugandan Villages. March 2009. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1369803
