Early Cost Realization and College Choice

Journal of Marketing Research 2021

82 Pages Posted: 9 Jul 2021

See all articles by Haewon Yoon

Haewon Yoon

Indiana University - Kelley School of Business

Yang Yang

University of Florida

Carey Morewedge

Boston University - Questrom School of Business

Date Written: June 21, 2021


Student loans defer the cost of college until after graduation, allowing many students access to higher lifetime earnings and colleges and universities they otherwise could not afford. Even with student loans, however, we find students psychologically realize the financial costs of a college education long before their loan repayments begin. We theorize this early cost realization frames financial decisions between most pairs of colleges as an intertemporal tradeoff. Students choose between investments with (a) smaller short-term costs but smaller long-term returns (a Low Cost-Low Return college) and (b) larger short-term costs but larger long-term returns (a High Cost-High Return college). We find early cost realization increases preferences for LC-LR colleges—preferences that could reduce lifetime earnings—in both simulations and experiments. Preferences for LC-LR colleges are pronounced among financially impatient students and in choice pairs of LC-LR and HC-HR colleges where the equilibrium is set at a low discount rate threshold. A return-on-investment strategy, future uncertainty, and debt aversion cannot explain our results. A decision aid synchronizing the psychological realization of costs and benefits reduced preferences for LC-LR colleges, illustrating the preference is constructed and receptive to interventions.

Keywords: Intertemporal Choice, Student Debt, Higher Education, Mental Accounting, Decision Aids

JEL Classification: I00, I22, D15, D91

Suggested Citation

Yoon, Haewon and Yang, Yang and Morewedge, Carey, Early Cost Realization and College Choice (June 21, 2021). Journal of Marketing Research 2021, Available at SSRN: https://ssrn.com/abstract=3872032 or http://dx.doi.org/10.2139/ssrn.3872032

Haewon Yoon (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W Michigan Street
Indianapolis, IN 46202
United States

HOME PAGE: http://kelley.iu.edu/faculty-research/faculty-directory/profile.html?id=HAEYOON

Yang Yang

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

HOME PAGE: http://www.andrew.cmu.edu/user/yy1/

Carey Morewedge

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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