Sunday, January 28, 2007

Economic education

One of the questions in my Micro prelim was about return to education and how I would relate my own life experience to what is in the literature. After outlining (with incorrect statistics) what literature says about it, I proceeded to argue through several paragraphs that I believed my own PhD to be just a signal with negative rates of return. It was difficult to make the argument since I could not state explicit facts about myself that would reveal my identity. Since I am the only Indian in my batch it was even more difficult to make the argument for a negative rate of return given inflation rates and expected salary levels in India. With about two years to go to complete my education this is a dangerous line of thought, since my investment (or is it just a cost at this juncture) in terms of time, money and other aspects has been huge towards this goal.

With the usual assumptions of economics I am supposed to be a rational individual who has made the choice to become a PhD with a fairly accurate measure of my intellectual capabilities. However, the rationality assumption also demands Bayesian updating. How indeed do I measure my success in the PhD program? If its by number of papers published, then I do not deserve to be in the program. If it is success in classes, does a 3.xx average count as decent score? Besides, even the As I have in my classes is because of good technique of answering exams rather than actual proof of acquired knowledge. What new do I know now that I did not know three years back? I know where to look for US Economic data, how to pick out libertarian books, where to purchase the cheapest books (most of which just adorn my bookshelf) and what to do to pass exams.

So, if I followed the principles of basic economics I should do a Bayesian update and quit grad school. Hmm!! The return indeed is highly negative if I quit now and walk away with my tail between my feet!! If I complete, atleast the signal will get me a better paid job than what I would get right now. I guess due to opportunity cost considerations I do choose to remain rationally irrational!! Now!! There's something I have learned that gives me hope for my future.

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