Let’s make a deal. There are two very similar objects you are considering buying. One is $10 and the other is $20, but I am going to offer it to you for $10. Which would you buy? In most cases, people would select the latter. Why? Because you are getting 50 percent off of that object. What a great deal!
Don’t think you would fall for it? Guess again.
In the mid-2000s, The Economist magazine offered three annual subscriptions: 1) a digital-only version for $59, 2) a print version for $125, and 3) a print and digital version for $125. You may be asking yourself the same question everyone else was asking—why is option number two even there? Who would pay the same amount for only a paper version when they could have the paper version and the digital version for the same price? You are correct—in an experiment by Dan Ariely, when people were given the three choices, no one chose the second option. Instead, 84 percent of people chose the combination deal and 16 percent chose the digitalonly option.
Why not remove the paperonly subscription? Clearly no one wants it.
In the next experiment, the paper-only version was eliminated—people could only choose the digital version for $59 or the combined digital and print offer for $125. What would you expect from the results? Unless you have heard this before, prepare to be surprised. When given just the two options, the web-only subscription rate jumped from 16 percent to 68 percent and the combination web and print deal fell from 84 percent to just 32 percent.
If you think the results of this experiment were an aberration, you are mistaken. There are hundreds, if not thousands, of studies showing consumers can be easily influenced by manipulating pricing. We would like to assume we are logical, but when it comes to making financial decisions the reality is far different.
Seeing through price-setting strategies to assess value is crucial as you work with families to compare college costs.
For the sake of the argument, I am going to compare a private university with an in-state public university. This comparison works for almost every state in the country because the tuition public universities charge in-state students is rarely ever priced above any private universities in that same state.
As an example, let’s say Private had a Fall 2019 price of $64,880. Public, the state flagship university, had a Fall 2019 price of $27,728 (in-state). When comparing these two numbers, Private’s sticker price ended up being 233 percent more expensive than Public’s sticker price. You could send at least two students to Public for the price of the Private.
Hold on! We know almost everyone qualifies for financial aid, so let’s move on from the sticker price and examine the average net price.
The average net tuition cost for a student at Public is:
Option 2 provides an 11 percent tuition discount and option 1 provides a 26 percent tuition discount. So even the wealthiest people applying to Public receive on average about a 10 percent discount, and folks who might be described as more middle-class are offered about 25 percent off the sticker price.
When we look at the average net tuition cost for a student at Private, we also find reduced-price tuitions for various income levels. The average net tuition cost for a student at Private is:
When compared to that sticker price, these sound like incredible discounts! Option 2 is a 34 percent discount—three times the discount for this same income range at Public. Option 1 offers a 46 percent discount—almost half off a Private education! This discount is almost double the 26 percent discount for the same income group at Public.
Now let’s go back to the first paragraph of this article. I have two similar objects for sale—one is $10 and the other was $20, but for you it is only $10. Do you recognize that the same behavior principle leading more people to want the 50 percent discount at the same cost as another object is at work in selecting colleges? For example, would you rather tell someone that you are going to Public with a $7,000 scholarship or tell someone that you are going to Private with a $30,000 scholarship? When scholarship amounts are considered, it is a no-brainer, right?
The reality is that when humans try to make decisions that include comparisons, we can be easily manipulated. Remember the print subscription of The Economist that no one bought? Do you remember what happened when the decoy number (print only) was dropped and the people selecting the digital only version went from 16 percent to 68 percent? In order to help us understand how we can be so easily tricked, we must accept one key fact—the actual cost to educate a student has very little, if any, correlation to the price to attend the college.
Instead, the cost a college assumes to educate a student has many more variables including, but not limited to: 1) the number of students put into classes, 2) the quality of the campus facilities, 3) its ability to raise money, 4) the size of its endowment, 5) the number of full-time faculty, and 6) honestly, the wealth of the students it can attract.
With that established, which price is now more attractive? If I told students applying to Private and Public that Public was priced at $24,670 and Private was priced at $42,722, which would they choose? Public, right? However, we don’t know the actual results of this choice because the private (or pricier) colleges don’t want their potential customers seeing these prices without the context of the discount. Could the education at Private be worth more than Public’s education? How would you even go about answering this question?
To provide some context on comparing college prices to their value, I would like to take you back to the spring of 1988, when I was faced with this kind of decision. I had visited 25-40 colleges with my father. We did a road trip through Pennsylvania to see Swarthmore, Haverford, Dickinson, Gettysburg, Muhlenberg, Lehigh, Lafayette, Villanova, Franklin & Marshall, etc. We did two southern road trips that allowed us to hit Davidson, UNC, Duke, Wake Forest, UVA, NC State, Richmond, and William & Mary. In our state, the top two colleges we considered were Johns Hopkins and University of Maryland.
Extensive data show that a student’s college choice is one of the least impactful variables in their success… 18 years of parenting constitute by far the most important variable in a student’s success.
There was lots to compare. Part of my attempt is pictured in this article. (Please enjoy the format.) Guess what? I fell in love with Duke. Excellence and beauty pervade the campus. At the time, it was going to cost me $20,000 per year to attend this out-of-state option. Maryland, our in-state option, had already admitted me to their Honors College for $5,000 per year.
I grew up in a middle-class home so the price difference of $15,000 for one year of college was significant. Duke was four times more expensive than Maryland. My father asked me, “How are you going to get four times the value out of Duke versus a Maryland Honors Program?” I couldn’t really answer him.
In hindsight, from a behavioral economics perspective, we needed a middle option between the low and high options, because people tend to think less expensive is less quality, but the most expensive just isn’t necessary—how good could it be? Thus, I ended up enrolling at the University of Virginia, which was going to cost us $10,000 per year, double the cost Maryland, but only half the cost of Duke per year. I was able to identify a number of factors that ultimately led my father to accept this compromise. In retrospect, maybe even this compromise was irrational. Did I get double the value of my education at UVA? Of course, I want to say “yes” but I realize that I have no idea what my experience at Maryland would have been like.
Now for the real hard truth. Extensive data show that a student’s college choice is one of the least impactful variables in their success. Parents may erroneously think this is the one area they have the most control over, but in reality, the ways in which they’ve shaped their child through 18 years of parenting constitute by far the most important variable in a student’s success. In short, the factors that result in student success are typically already present when they apply. And if not, it is mainly a student’s choices for engagement while enrolled in college (rather than their actual choice of a college) that alter any success trajectory.
Two of my children are likely heading off to college in the fall. I have learned a lot about how our minds and colleges work to guide/manipulate our choices and I don’t want my friends and their high schoolers making a mistake that results in loan debt significantly more than a student/family can bear in early adulthood.
A student’s college choice, often made with so much love wrapped into it, may feel akin to the decision to marry a lifelong spouse. But that mindset can sometimes be deceptive and ultimately cost students and their families a lot of additional money, data show. Choosing which best-fit colleges to apply to requires thoughtful consideration. So does deciding where to attend. It’s easy to be influenced by tuition discounts and comparative pricing, but the final stage of the college admission process demands just as much attention as a student’s initial search for schools.
Dr. Jeff Doyle is associate director for planning and assessment at Baylor University (TX).