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Let me illustrate. Suppose you're at the 90th-percentile of high school
graduates, so your probability of graduating college if you enroll is
around 90%. When the college premium ascends from 50% to 70%, your expected premium
goes from 45% to 63%. In plain English, the payoff goes from very good
to excellent. Either way, enrollment is a no-brainer.
If
instead you're at the 25th-percentile of high school graduates, your
probability of graduating college if you enroll is around 20%. When the
college premium ascends from 50% to 70%, your expected premium goes from 10% to 14%. In plain English, the payoff goes from really crummy to crummy. Either way, non-enrollment
is a no-brainer... especially when you dwell on the fact that colleges
don't refund drop-outs' tuition, much less the earnings and work
experience they forfeited to attend.
Source: Brian Caplan,"What Bad Students Know that Good Economists Don't," EconLog, February 13, 2013
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