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The author ends with: given that universities are most likely still charging a lot less than their market price even after years of stiff tuition increases, my

The author ends with: given that universities are most likely still charging a lot less than their market price even after years of stiff tuition increases, my guess is that we're in for yet more pain one way or another. When you include opportunity costs and risks of not finishing in 4 years many collages's tuition costs are vary close to the value they provide. With some degrees being a net economic gain and other a net economic loss. Granted all of these numbers are hard to calculate but there is simply less headroom than his analysis suggests. Edit: It looks like there is a bug where I can up vote this post.

streptomycin 15y ago
But isn't a market price determined by what people think the value is, not what the intrinsic value actually is?
- onemoreact 15y ago
  It's a complex question and you can model it in many ways based on different assumptions etc. However, if want to go with the traditional economic idea: People have internal utility functions that provide an internal value. They can also guess how other people value a good and if that's higher than their internal value they might buy it with the intent to profit. It's the second line of thinking that can create bubbles, but it's a finite world with finite resources so over time speculators tend to run out of money at which point market price tends to go back a market price based on an internal value of people who actually use the good and the cost of production. It's odd to think of people being more rational in the long term, but rational ideas are simply more stable.
  - streptomycin 15y ago
    > It's odd to think of people being more rational in the long term, but rational ideas are simply more stable. Interestingly, I read this paper not too long ago: http://www.nature.com/nature/journal/v477/n7364/full/nature10384.html http://www.nature.com/nature/journal/v477/n7364/full/nature1... It's just a toy model... but that does underscore how easy it is to come up with a set of assumptions that lead to irrational ideas being more stable than rational ones.
    - onemoreact 15y ago
      That model uses an incorrect mapping between beliefs and actions to correct for the 'incorrect' beliefs. As long as the internal model map's correctly to the external world it's correct. It's logically the equivalent of someone acting normal for fear the invisible elephants who secretly run things will eat them.

streptomycin 15y ago

But isn't a market price determined by what people think the value is, not what the intrinsic value actually is?

onemoreact 15y ago
It's a complex question and you can model it in many ways based on different assumptions etc. However, if want to go with the traditional economic idea: People have internal utility functions that provide an internal value. They can also guess how other people value a good and if that's higher than their internal value they might buy it with the intent to profit. It's the second line of thinking that can create bubbles, but it's a finite world with finite resources so over time speculators tend to run out of money at which point market price tends to go back a market price based on an internal value of people who actually use the good and the cost of production. It's odd to think of people being more rational in the long term, but rational ideas are simply more stable.
- streptomycin 15y ago
  > It's odd to think of people being more rational in the long term, but rational ideas are simply more stable. Interestingly, I read this paper not too long ago: http://www.nature.com/nature/journal/v477/n7364/full/nature10384.html http://www.nature.com/nature/journal/v477/n7364/full/nature1... It's just a toy model... but that does underscore how easy it is to come up with a set of assumptions that lead to irrational ideas being more stable than rational ones.
  - onemoreact 15y ago
    That model uses an incorrect mapping between beliefs and actions to correct for the 'incorrect' beliefs. As long as the internal model map's correctly to the external world it's correct. It's logically the equivalent of someone acting normal for fear the invisible elephants who secretly run things will eat them.