Wednesday Thoughts: Lying and Inflation

I've been known to question certain social norms, largely because they make no sense to me. Here's a formal inquiry into one of those interesting cases. In a new working paper, Brigham Young University’s Jeffrey Denning et al. delve into the reason for rising graduation rates. They find that when the

trends in the college wage premium, student enrollment, student preparation, student studying, labor supply in college, time spent studying, and the price of college would all predict decreasing college graduation rates.

We get increasing graduation rates. Why? Grade inflation. They find

evidence that the increase in grades is due to grade inflation


a one-point increase in GPA is associated with a 30 percentage point increase in the probability of graduation

also noting that

The change explained by GPA alone is 3.57 or 95 percent of the observed change.

This specific margin hints at the now all too common instances where lying becomes the only form of truth-telling. We see and understand this more clearly in the dating market. 57% of us lie on dating profiles but rate honesty highly. This points to three aspects of social norms that plague my thoughts.

One, if we are going to have expectations, it is rational to consider what is in our information set. If we are to expect certain things from people, it is reasonable to consider what we have gotten in the past and what we have given. In most cases, we have a portfolio of certain untruths that we all adopt because it is socially efficient. This is in no way a castigation of society broadly because I fall for this as well. My broader point here is to diversify the portfolio with more truths than untruths because untruths scale faster and are harder to fix.

Two, the adoption of these convenient untruths is rational on an individual level, but on the aggregate, is at best ambiguous and at worst downright detrimental to societal expectations.

Point three directly questions the previously stated ones. In dating and GPA inflation, the broader effects are ambiguous because we now have better assortative mating than ever before (although marriages and family sizes are declining.) Our economy is more high-skills-oriented than ever before, which means the effects of the grade inflation story are not as clean as one would hope. As a result, solutions are difficult to formulate or come by. That said, to keep the intrinsic value of our information set relatively constant, or dare I say better, we should societally tax lies, no matter how convenient and subsidize truth-telling, no matter how difficult.

Overall, I believe social norms are remarkably crucial in human interactions. We all feel the same way and vote with our feet, as evidenced by the continuation of social norms. We also highly rate values that we find aspirational, like honesty but find it challenging to implement due to signaling issues. I admit it is a complex problem to solve, but the problem with inflation is that unless controlled or curbed, we all lose faith in the object's value.

Certainty rating: 84%


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