Tuition Myopia: Myopic Focus on the Costs of Higher Education Induces Intertemporal Tradeoffs
Haewon Yoon, Yang Yang, and Carey Morewedge, 2019, 19-120-06
The second quarter of 2010 was an alarming time for American consumers—for the first time in history, student debts surpassed auto loans and credit card loans to become the second-largest source of consumer debt in the United States. In response, government, for-profit, and nonprofit agencies have encouraged students to consider the financial ramifications of their college choice in terms of both its total cost and long-term financial returns. Little is known, however, about the consequences of highlighting this kind of financial information on the colleges chosen by students.
Across six studies, Haewon Yoon, Yang Yang, and Carey Morewedge find that when choosing between a high-cost, high-return (HCHR) college and a low-cost, low-return (LCLR) college, consumers of higher education exhibit tuition myopia—they psychologically realize the debts associated with college upon enrollment, not upon graduation, when the costs become due and their financial returns begin. Consequently, consumers perceive an intertemporal tradeoff between financial costs and benefits when choosing between colleges. In cases in which more expensive colleges produce larger financial returns and cheaper colleges produce smaller returns, temporal discounting leads financially-impatient consumers to prefer low-cost and low-return colleges in both hypothetical and real choices and fail to maximize their lifetime earnings.
They further demonstrate that changing the presentation of financial information effectively reduces tuition myopia. Typically, college financial information is displayed such that attendance costs and long-term returns appear side-by-side, and this presentation may facilitate tuition myopia by framing college choices as intertemporal tradeoffs (i.e., invest now and get returns later). Yoon, Yang, and Morewedge find that providing annual loan repayment estimates—rather than the tuition cost for each year of college or the total cost of attendance—adjacent to annual salary information significantly mitigates tuition myopia.
Overall, their research identifies and elucidates a consequential phenomenon that potentially affects millions of consumers each year and substantially impacts the long-term benefits of higher education.
Haewon Yoon is Assistant Professor of Marketing, Kelley School of Business, Indiana University. Yang Yang is Assistant Professor in the Department of Marketing, Warrington College of Business, University of Florida. Carey Morewedge is Professor of Marketing, Questrom School of Business, Boston University.
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