Biased Beliefs and Search in Education Markets

Princeton University, Princeton NJ

Investigators

Abstract

Choosing the right school for one?s child may determine the child?s future educational outcomes, yet parents do not always choose the best schools because of inadequate information. This research will use experimental methods to study the reasons parents make school choices with very little information about options available to them. The research will study the relative importance of two mechanisms through which this occurs: (i) difficulty and cost of acquiring information about school characteristics, and/or (ii) families have incorrect beliefs about the distribution of schools, believing that all schools are the same. Each of these mechanisms has a different policy implication. The research will develop a theoretical model based on parent?s beliefs about school quality and how these beliefs change as they receive new information. The research will then test this theory by providing different amounts of information to parents to see how this affects their school choice decisions. Comparing outcomes for parents who receive information to those of parents who do not receive information allows the researchers to determine the effects of information and its costs on parental school choice. The results of this study will provide a better understanding of why parents do not always choose the best schools as well as provide inputs into policies to improve parental school choice. The results will also help improve school and education policies, increase human capital formation, and ultimately economic growth. This proposed research will examine why parents may not choose the best schools for their children by investigating the process of information acquisition to make school choices. The researchers will develop a structural model of sequential search which allows for biased beliefs about school characteristics, search costs, and the benefits of search. The researchers will test this model using data collected from a randomized control trial (RCT). The experimental results will then be used to estimate the structural model on parental educational choice using merged data from the experiment and administrative data on school characteristics, family characteristics, cost of information acquisition, and school outcomes. The results of this research will provide important inputs into parental education decisions, improve educational outcomes and ultimately increase the stock of human capital and economic growth in the US. The results will also establish the US as a global leader in research on parental school decisions. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.