The Ed Techie

Prospect theory & the panopticon of debt

Last night, after Nick Clegg's semi-apology over student loans (see comedy version with honesty subtitles below), I got involved with a twitter chat with an economist from Demos. He argued (very intelligently) that the loan scheme would actually save the tax-payer $2.5K per student, and that it should be viewed as a progressive tax, and not debt.

I don't know enough about economics to really counter his claim about the savings. It certainly appears that the Coalition were caught out by all universities charging the full fee, which would suggest it isn't being quite the financial success they had envisaged. But the fact/misleading rumour that it was unaffordable was only ever an extra insult/icing on the cake to what was generally perceived to be a damaging policy to higher education. "You've done all this damage, and it's worked out worse than the old scheme anyway" was the cry.

Let's accept for now then that it could theoretically save money in the long term. This doesn't mean it won't severely damage the higher education sector. And here I do feel on firmer ground, because economists (particularly free market ones) tend to ignore those pesky humans in the mix and assume a rational market.

I would like to propose two psychological factors that will come in to play, which I don't think have been modelled in any government plans.

Prospect theory - Tversky and Kahneman conducted a series of influential experiments in the 70s which demonstrated that people give loss more psychological weight than gain - put bluntly losing £20 has more significance than finding £20. People then adjust their behaviour accordingly - they are risk averse. 

In our case this means they will perceive the student loan as debt, and that debt will weigh more heavily than the potential gain of a good job, a rewarding time, or future earnings. They will thus behave appropriately, with two courses of action:

a) Risk aversion - they don't go to university in the first place and take on the debt. This harms the higher education sector.

b) Risk reduction - they act as if it is current debt and seek to pay it off. This harms society more broadly, for instance, they avoid taking on more debt in the form of a mortgage thus impacting the construction sector.

This won't affect all students, just as some people are more risk averse. Some will judge it a risk worth taking and study anyway. Tversky and Kahneman also talk about the 'Value function", whereby the difference in loss between £100 and £200 is seen as greater than the difference between £1100 and £1200. This would suggest that the impact will be felt most keenly for those from less well-off backgrounds as the potential debt is perceived as a larger part of current wealth, it is a bigger risk

It would take a big research project to estimate the impact of this factor on student behaviour, so for now let's take a figure of, say, 20% fewer students applying, given that is a strong psychological factor found in many instances.

The panopticon of debt - the second factor is that of the panopticon. Taken from Bentham's proposal for prison design and adapted as a metaphor for society by Foucault, the panopticon suggests that when all prisoners/citizens can potentially be observed all the time, they act as if they are. As Foucault puts it:

"He who is subjected to a field of visibility, and who knows it, assumes responsibility for the constraints of power; he makes them play spontaneously upon himself; he inscribes in himself the power relation in which he simultaneously plays both roles; he becomes the principle of his own subjection"

It doesn't matter that they aren't observed all the time, the knowledge that they could be makes them act as if they are. I would suggest future debt acts in a similar way. The knowledge that it could become debt and be paid off makes people act as if it is current debt, even if they never had to pay it off (because their earnings didn't reach a certain level). As with prospect theory the impact of this factor is likely to be felt more keenly in some sectors. Some prisoners in a panopticon prison will calculate the probability of being observed at any one time and overcome their fears, others won't.

This transfers the debt from a national one to an individual one, and at this level its impact is more toxic in the economy. The outcome will be the same as for prospect theory: a reduction in numbers applying and a reduction in spending from those coming out the other end.

Again, knowing the size of the impact of this factor would take more research than I can put into a blog post. But let's say it adds another 10% to our previous 20%, giving a total reduction in student numbers of 30%. Like the impact of these factors, it would not be evenly distributed, so Russell Group unis might see no decline at all, while others might see a drop by as much as 50%. This would surely send some under.

Now, it may be that we think a 30% decrease is desirable, that the higher education sector has become over-crowded. But it would be better to state this as an aim, and to work towards it (universities could do better planning then), rather than hope it occurs as the result of an unpredictable system. It would be interesting to know if any of these factors were considered when modelling the future of higher education? 

The network ate my newspaper

(So what do you think of David Cameron then Gordon?)

So the UK televised Leaders Debates have now finished. I have to say, it's been a blast. Not because they were good television (after the first one and the surprise Clegg factor they quickly reverted to saying the same things), but because of the back-channel on twitter. In 2008 I suggested that the Eurovision song contest was the perfect TV twitter event because

"It is, in fact, quite boring (none of the songs are any good), so there is plenty of time to Twitter. At the same time, it is quite enjoyable and provokes comment, so there is a desire to share. And you know that it is a communal event, so others will be watching too."

The same might be said of the leaders debates. Having the back channel has been endlessly amusing and inventive with twitpics, hashtags, videos and jokes being shared in real time. It has also been very informative as people have challenged the views represented and sought out facts and shared these.

Over at the BBC Rory Cellan-Jones suggests that

"So far, it's been a much better election for the mainstream media - or the "MSM" as they're described by an often contemptuous blogosphere - than you might have expected. The bloggers hoped they would boss this campaign, breaking stories, setting the mood, and leaving the flat-footed old media types trailing in its wake."

The alternative is also true - ask yourself this, could you really function as a political journalist (or academic) and not have followed this election on twitter? I'm with John Naughton who argues that:

"One of the more comical aspects of the current UK election is the way ‘old’ media (newspapers and broadcast TV) gloated about how they had ‘transformed’ the election from the venerable two-party slugfest into a supposedly more open contest. There’s a note of triumphalism here: “see”, the dinosaurs are braying, “for all this talk of an ‘online election’, the impact of the Net, social networking, twitter etc. it’s really going to be decided by older, tried-and-trusted media”. There may be a lot of cyberchatter on Twitter and Facebook, the political editors jeer, but it’s not showing up on the doorstep."

I think the effects of social networking are quite subtle. I'm not naive, I know that the majority of UK voters aren't on twitter, but this is still fairly new. How will that look at the next election? The thing about social networks is that they are difficult to manipulate. Like John Gilmore's quote about the internet, something similar can be said:

"Social networks dissipate direct pressure and push back"

This means it is much more difficult to manipulate people in a network the way the broadcast media can be manipulated. It requires more energy and when you apply that pressure the network pushes back (usually with sarcastic humour and parody, which is the politicians worst enemy).

So while old media may be congratulating themselves, they have missed the point. This is the election that marked the beginning of the end of their power, they just haven't noticed it. I am reminded of a quote from the (not particularly good) film Deep Impact, in which the President, as played by Morgan Freeman, says to the plucky reporter:

"it might seem that we have each other over the same barrel, but it just seems that way."

When reflection goes AWOL

<Image http://www.flickr.com/photos/eryda23/284475315/ by eryda23>

I was talking with a colleague the other day about the difficulties of integrating reflection as practice into education. We know being reflective generally makes for a good practitioner, but it's difficult to force people to be reflective. Schon's observations could be result of correlation, not causality, ie good practitioners tend to be reflective, but making someone reflective won't necessarily make them a good practitioner.

Anyway, there was much furore at the time about bankers and their bonuses. In much of the discussion that followed and particularly the types of statements that came from bankers and their bosses, it struck me that reflection is almost the key attribute they lack. Schon makes the distinction between reflection in action - they obviously failed to exhibit this when creating a global pyramid selling scheme, and reflection on action - they have failed to exhibit this since the downfall and the suggestion that massive bonuses are necessary to their function is an example of this.

I think it is this latter failure, that to truly accept and reflect on how badly things went wrong, and thus make the requisite adjustments that is truly terrifying. Bankers often project this attitude that the rest of us are over-reacting, and no major changes are required, just some tinkering. They are akin to a serial murderer who has been caught because they were speeding, but still protests they weren't really going over the speed limit.

'The reflective banker' has become an oxymoron, and it seems to me one of the challenges that society faces (since, let's face it the financial industry won't do it), is how to inject reflection as common practice into the banking industry, both at the individual and institutional level. A reflective banker/bank would continually ask:

i) Is what I am doing harmful for society?

ii) Am I being paid too much? (because contrary to belief it is possible to be paid too much, because it leads to next point)

iii) Is this mode of operation unsustainable?

If the answer to any of these questions is 'yes' (or even 'maybe') then big sirens should automatically sound in every household in the country.

One of the problems with extreme financial success is that it creates a bubble - we see it with footballer's also. Only those within the bubble are perceived as truly understanding what is going on (they are holders of some truth) and thus communication only happens within the bubble. And reflection is akin to criticism which is a potential bubble-burster, and thus is explicitly (through reward structures and punishment for speaking out) and implicitly (through social norms) outlawed. If truth is the first casualty of war, then reflection is the first casualty of runaway financial success.

As I started out saying it's difficult to force people to be reflective and when you do it quickly boils down to fake-reflection and game-playing. But you can provide a context within which it is encouraged. This can be through interaction with people outside of the bubble (even the dopiest celebrity is forced to reflect on their shallowness when they visit poor nations for charity), through answering criticism fairly (people who say 'I never read the papers' should be made to), and perhaps, just maybe, through education.

If various governments really want to prevent another financial crisis (which is inevitable given the paucity of real solutions to the last one), then making reflection a virtue in the sector would be a good place to start.