Explaining Monetary Inflation and Moral Hazard through Grade Inflation:

This being add-drop first class week at my school, I started my two classes in corporate finance and international business transactions with a discussion of class policies and procedures, grading, and so on. I suppose I might have skipped over all that, as I had earlier distributed a lawyer-like five page memo stating everything very clearly - but, as ever, the first day of class convinced me that no one had actually read it, not even the parts prominently titled, Grading and Exam policies.

One of the transitions that young lawyers have to make is from being a student who can assume that anything truly relevant will get explained to them. Many have been trained through demanding educational environments to value triage, triaging too much work, as their most important skill. At some point they have to learn that being the lawyer means being the person who actually reads the document that everyone else assumes you will summarize for their benefit. But they haven't learned that yet.

I had already concluded, looking over grading charts for the rest of the upper level courses, that I had allowed my mean grade to drift a little higher than I wanted over the school's mean....

(Update: I would like to invite comment to Random Physicist's tantalizing remarks - to the effect that he is not convinced that rational students would be risk averse in the way that I propose later in this post. I invite comment in particular to two issues: (1) is Random Physicist right about the strategic logic of grade-maximizing students under conditions of grade inflation/grade compression? (2) could this be cleverly understood as a version of the Efficient Market Hypothesis, and if so, what version, and what strengths or weaknesses does this deductive strategic logic imply as a version of EMH? I have brought Random Physicist's comment up into the body at the very end of the post.)

(For example: Does it matter whether this "grade inflation" comes about because students self-select into the classes in which they are most likely to get an A and therefore, in absence of a genuinely forced curve, tend to drive the curve up towards As? Versus: Grade inflation comes about for reasons independent of student self-selection, but instead for different and independent reasons, such as teachers simply wanting to hurry through the grading and a higher grade is easier to give (ie. justify to a student, such as the process is nowadays) than a lower grade?) Does the dependent or independent cause of the grade inflation matter in the explanation? And, again, what might this be seen as parallel to in EMH arguments, if anything?)