Thursday, July 26, 2012

Good Luck Reproducing Those Results

Kevin Drum on the new Fryer/Levitt/List/Sadoff (Fryer + Freakonomics is a pretty toxic mix in my book) merit pay study:

But I'm still a bit puzzled. If I'm reading the results correctly, teachers in the gain group could expect $4,000 if their students produced average results, and $80 per percentile point extra if they did better than average. In the end, they produced results two percentile points better than average. Teachers in the loss group were paid $4,000 at the beginning of the year, and had to pay back $40 per percentile point if their kids did worse than average. They ended up producing gains of about seven points. (See Table 3 in the study here.)

This means that on average, teachers in the gain group earned $160 extra ($80 x 2) while teachers in the loss group gained $280 ($40 x 7). But the teachers must have known beforehand that their rewards were likely to be very small compared to the $4,000 baseline: In theory, they could earn thousands of extra dollars, but only by being supermen. The authors don't say how well the very best teacher did, but based on their summary results the top teacher probably generated an improvement of about 15 percentile points compared to average. That's a reward of $600 above the baseline. And that's the best result. This kind of money seems like it's far too small to produce any kind of serious impact.

So something about this doesn't really add up. Maybe I'm interpreting their results wrong, but I simply don't see how expected rewards this small could generate such significant improvements. Somehow, the baseline extra pay of $4,000 must have played a role here. right?

Assuming Drum's interpretation is correct, I can easily imagine that teachers didn't initially calculate how small the final bonuses were likely to be, but it would be very clear the second time around with the same teachers, or even with a new group of teachers who know how to use Google.

Also, once you'd do this a few times, most teachers would know to put the money in the bank, and a good union would have something set up so you could get it directly deposited into a savings account or even escrow. A really good union (that somehow had this imposed on them) would make it easy for risk averse teachers to just pool all the incentives into a single account that would pay back whatever bonuses were clawed back and give everyone an equal bonus.

Regardless, the whole concept of giving out bonuses and clawing them back is never going to fly.

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