Ever less choice

Since the MFin began two and a half years ago, we have been steadily reducing student choice. Not in the sense of cutting out electives – on the contrary, there are more options than ever. But in the sense of reducing the decisions required of students about how to organise their work and timetable. And I’m thinking we need to go further still. Let me explain.

There are two group projects in the MFin syllabus, as well as several group assignments as part of individual courses. Each project requires a topic, or company in the case of the equity research project. It also requires decisions on how to organise the group, allocate work, set deadlines and so forth. And all students need to choose how to spend their time so as to meet the various assignment and exam deadlines.

Naively, I thought that it would be best to leave maximum choice to the students, in line with the (obviously flawed) axiomatic framework of rational decision making used by economists. I have discovered that too much choice produces stress, inefficiency and poorer results.

First we took away the decision on which company to cover for the equity research project. Some groups spent days unproductively arguing about this. So now we simply give each group a subject. The group composition is chosen by us too. And from next year I think we’ll have to impose some deadlines for individual parts of the project as some teams seemed unable to do this for themselves.

Part of the learning experience of group working is figuring out how to get the work done. One option is for each team to elect or otherwise choose a project manager (as in The Apprentice – though I hope the resemblance ends there). Nobody seems to ever do this, though some people informally seem to become the team decision maker, not always with everybody else’s full agreement.

So we could force each team to choose a project manager, but that might prove controversial. Many people seem to think they should naturally be the leader yet are quite unsuited to this role. As long as they learn from their failure I’m not too bothered about the grief that then ensues.

Or we could choose the team leader too – perhaps deliberately targetting those who would be unlikely to put themselves forward. But would that cause undue stress for them?

More generally I think there is a case for sequencing the work more explicitly. In (economic) theory, leaving the maximum choice for students to organise their work should be optimal. But finance students are just as prone as other mere mortals to procrastination and weakness of will. And many would clearly prefer to have deadlines forced upon them.

The root of this behaviour is well known to psychologists and was even identified in the economics literature in 1956 in a paper called “Myopia and Inconsistency in Dynamic Utility Maximization” by RH Strotz. The problem is hyperbolic discounting, a way of valuing the future that leads to time inconsistency. ┬áIn plainer English, people become more impatient as a situation becomes more imminent. A concrete example is the intention to give up smoking (or diet or go to the gym – pick your “unpleasant” option) in the future which fails because the person decides to have a cigarette when the actual decision is right now. Or choosing to revise for the exam next Tuesday when today is Friday and then deciding when Tuesday arrives to postpone it till Wednesday, even though it will be more painful by then because the exam is imminent.

Experimental research has shown that i) those relatively rare people who don’t show this weakness of will, do better in exams than the rest of us; and ii) that the normal, weak people do better when given intermediate deadlines that force them to study against their (short term) will. This is a form of commitment to overcome the self’s tendency to sabotage your well intentioned long term plans. An old example of pre-commitment is the Christmas savings account which you start in January and can only withdraw money from in December. If you change your mind and ask for the money back in June, the bank will not give it to you. The “sensible” you of January thereby commits the feckless or weak you of June to make sure that there is money left in December to pay for Christmas.

So even the rational, well-trained and unquestionably very bright MFin students may be better off and get better results if we force them to adopt more regimented study patterns. But is that the right thing to do? Unless there are similar mechanisms in their future jobs, perhaps we would just be giving them false comfort?

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