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?)
I had also concluded that I wanted to bring the content of corporate finance back to Bratton's standard text - I very much like the sixth edition - but it is a more difficult text than what I had been using. And I had unilaterally and with little notice, hijacked my last term private equity course and turned it into a financial crisis course, which had been irritating to some students and with some good reason, so I had frankly been pretty easy in the grading across the board. All of which had left me with a public reputation for being an easy grader - and I had been seeing it in the class prep.
The five page memo was designed to alter that. I have always had a number of in-class quizzes during the term. I require students to purchase the Barron's finance dictionary, and give out a couple of vocab lists from which I quiz. I also require a WSJ subscription, and give quizzes on the Money and Finance page content. But I have generally veered away from cold-calling people in class or requiring panels for participation; many of my students are foreign LLMs with good practicing lawyer skills but not such great oral English and very little exposure to American-style thinking about the law and regulation of corporate finance through basic law and econ categories.
I've realized for a long time that the only thing students seem to remember from my courses years afterwards are the vocabulary terms - I routinely get emails from students years out saying, thanks for making me memorize the definition of puts, calls, futures, leverage, etc. Indeed, I've come to see the enterprise of teaching corporate finance in law school to students for whom this is a basic introduction to finance, business, and related concepts is that it is like teaching a foreign language. Unlike the sweet promises of Rosetta Stone (like learning your first language, no memorization, etc., etc. - claims so ludicrous that I can't tell whether its public offering will pay off big because it promises a really free lunch, or is worth shorting because its basic premise is so Contrary to Nature), the required elements of learning a language are vocabulary, grammar, and usage. Instant understanding and comprehension is not the point; brute memorization and rote usage to start is, and then fluidity, comprehension, etc., come gradually.
So I've upped it to a weekly vocabulary quiz for terms, a weekly WSJ quiz for usage. I told them I don't really care if they understand it or not - getting the terms and just memorizing the content of an article is fine to start, and gradually, as the circle of definitions widens, it will start to make sense. i don't tell them it might be ... five years from now. I'm setting up panels. And I require a hundred words a week on the class discussion board trying to use these terms. All good. And the grading?
I decided to be completely blunt with them - told them I thought my grading had got out of line on the high side, and that the median grade was going to be a B+ (this is about exactly on for large 3L classes at my school). The final exam is a takehome with unlimited time but limited pages - and what I wanted to see in an A presentation was something substantively right, insightful and clever, and well organized in the way that one might actually present to a boss, client, senior associate or partner. Not the usual brain dump. But my problem was that I did not want to make the class impossible for students who had no background in the subject matter from undergrad or something, and so I was going to offer an insurance policy - do all my interim term stuff, and I would remove the possibility of getting a C.
One of the big reasons why I object to grade inflation is that it is really grade compression against the top. The result is that as students' GPA get higher and higher, not only are the differences between them obscured - the only way to go, especially by your third year, is down. The incentive becomes overwhelmingly not to take any course that might lower your GPA, even if that means avoiding courses that might teach you something you know nothing about and should and even really want to, such as the classics major wanting to take my corporate finance class. You worry you can't compete against the undergrad business major who, frankly, isn't as smart as you-the-classics-major, but knows more about the subject that you do. (The undergrad business major runs another risk - thinking that if you know discounted cash flow analysis, that qualifies you without work or study to know how to read and evaluate bond covenants, but it is true that just knowing the basic vocabulary of business is a big step up.) Grade inflation=grade compression=risk aversion, because of the asymmetry of gain and loss.
So we walked all through this stuff. I told them that they were caught between the credentialing process and the educational process, and on top of that, they were in a peculiar problem of agency - the problem of the Infant Principal in the hands of the Professor Agent; they are the principals, but not expert to be able to direct the agent. And, moreover, I have written them a peculiar option; they can choose to exercise their right to ... have a largely irrevocable relationship with me as their instructor and grader in which they voluntarily give up the ability to get rid of me. During the add-drop window, my policy is to provide as much information as I can but still being clear that I, not they, am in the superior information position to know what they need to know. But I am not in a superior information position with regards to their tradeoff between credential via grades and knowledge via an intellectually demanding course. They have a week whether to exercise an option to remove their future options.
I pointed out that they all pretty much knew all this from many years successfully navigating the educational credential-learning system - but they might not have thought of it in these terms. They need to know how to characterize lots of situations in terms of the logic of options and so on. This intrigues some of them, terrifies others.
But then to grades. I explained to them in plain terms my grading policy, the curve and the insurance policy the bottom. I finally told them, before we ended, that one of my research assistants had advised me that I had shown up on some student discussion board last term as "A is for Anderson." Hmm. Hmm. That's going to get fixed fast. So I wanted everyone to understand that ... I had decided to remove excess liquidity from the Anderson grading economy. I explained that for various reasons, I had allowed myself to fall into the position of Alan Greenspan, and I had allowed a Grade Bubble to develop. Although they didn't quite know what it meant, they had come to rely on the Anderson Grade Put. If that's why they were in the class, they really needed to think again, because I had decided to re-establish Moral Hazard. My intention, I told them, was not precisely to do a Volker, but something close to what Bernanke soon enough will have to do.
My impression is that liquidity dried up in the form of an overnight 20% drop in the number of registered students. Interestingly, however, word seemed to have spread, because enrollment went up again, by about 15, maybe 20%. My guess is that class seats have flowed to those who value the educational content more. Or so I hope.
Random Physicist says:
I don't know if I agree with you on how grade inflation causes risk aversion. If one assumes that students make class choices purely based on the projected GPA from them (I don't know if this assumption holds up in law school), then students will always try to take classes in which they can get A's.
In a system without [with? KA] grade deflation the students would only pick the classes in which they had significant background, knowing that they need to be at the very top of the class to get an A. However, factoring in grade inflation, the same student might figure he can get A's in both classes he has background in and classes he doesn't. Therefore he's more likely to take classes that interest him but that he has no background in.
I'm against grade inflation in general, in that I like significant differentiation of students at the top, but I don't think it causes risk aversion.