Can MOOCs replace College?
Coursera and EdX have emerged into massive hubs of education online, teaching a wide plethora of courses at almost no cost, except a decent internet connection. As of September 2015, they together had over 20 million users. That’s within a period of 4 years. Many believe that MOOCs (Massively Open Online Courses), like those that Coursera and EdX offer, are the way of the future. Traditional college learning will slowly get uprooted in favour of these MOOCs, since they are more convenient and significantly cheaper. This is a highly disputable claim. No one says that MOOCs are less effective as a means of education, or that the quality on offer is debatable (in fact, edX was started by Harvard University and MIT). There’s something else at play here.
Stepping back, let’s consider why everyone preparing for engineering in India wants to enter an IIT. What do any of them, or their parents, or relatives really know about these colleges? There is just a perception that these institutes offer a better education, signaled by the jobs on offer to them. That’s the key here — employers categorise students by the college they come from. Prospective employees, in turn, attempt to enter these colleges in order to signal employers of their quality. Imperfect Information turned the Economics profession on its head, which built models based on the assumption of perfect information till the 70’s.
Akerlof’s Lemons
George Akerlof wrote The Market for Lemons in the late 60’s, just a few years after completing his PhD. He took the example of a used-car market, where there exist peaches (good used cars) and lemons (bad used cars). In this market, the sellers have more information than the buyer — they know if the engine is faulty, or if a cover-up paint job has been done, and so on. These are details that the buyer cannot ascertain until he actually buys the car. This information asymmetry is the reason these markets do not behave like traditional markets in which marginal revenue equals marginal cost. If the market has 2 cars, a peach which costs 2 lakh, and a lemon which costs 1 lakh, which one would you buy? If you needed a car for only a short while, you might consider the lemon. If you needed one for a longer time, you would be willing to spend the money to buy the peach. But here’s the problem — you don’t know which one you’re getting! There’s no way to distinguish the peach from the lemon. What do you end up doing? If you really need to buy one, you’re still willing to pay some money, but not the 2 lakh needed to buy the better car. This is the cost of uncertainty. If the customer here is willing to pay 1.5 lakh, the seller of the peach has no reason to put his car on the market, because the existence of lemons prevents him from getting value in the market.
Now what happens when peaches leave? That leaves a higher proportion of lemons in the market. Soon, the customer has less faith in the market, and reduces the amount of money he is willing to pay. This further drives away peaches from the market. Eventually, this leads to a Nash Equilibrium of no market.
Akerlof’s paper was rejected by 2 journals for being ‘trivial’, while the third simply branded it wrong. However, once it was finally published, it was received with enthusiasm, particularly by Michael Spence and Joseph Stiglitz. Michael Spence wrote a paper on Job Screening, building on Akerlof’s idea. Joseph Stiglitz, meanwhile, wrote about externalities and how efficient markets are the exception, not the rule. Akerlof, Spence and Stiglitz jointly received the 2001 Nobel Prize in Economics for their contribution to the subject.
Lemons and eBay
eBay was initially conceived exactly like a Lemons Market. It was simply a marketplace where sellers could meet buyers. There were no fees, guarantees or in fact any third party interaction. . This led to an explosion of fake and damaged goods on the marketplace, alongside a whole set of other scams. The problem here was that there was no way to distinguish the peach from the lemon. How then, was eBay still able to sell 82 billion dollars of merchandise in 2015? They introduced signalling.
Signalling is done in a variety of ways. When a shop sets itself up in a rich locality, it is signalling that it can afford to exist there, and thereby must be of high quality. Students do internships to signal themselves as more employable. eBay introduced a feedback system. After every transaction, the buyer and seller could rate each other. This way, eBay didn’t need to check for quality itself — its customers did it for them. If a seller consistently sold poor quality products on the market, he would receive a poor rating. This would help future buyers distinguish between the quality of products on offer, avoiding the Lemons Market problem. There are other methods of signalling adopted by sellers. Offering more details about a product signals that it is less likely to be of poor quality. The same system is used by Amazon, Flipkart, PayTM, and all other marketplaces that have multiple sellers.
Where do MOOCs fit in here? MOOCs provide certificates to students who complete the course, which is a way of signalling expertise in the field. There were 2 types of certificates on completion — a free certificate and a Verified certificate, which uses the video camera to confirm that the same user finished the course. A Verified certificate costs money.
The Cost of Verification
All students who are motivated and good (the peaches) have no reason to not pursue a certificate at the end of a MOOC, especially if it’s free. This student can now go to the employer and show this certificate as a proof of quality, bridging the information gap. This would make it all the more important for the less academic students (the lemons) to also pursue a certificate, as now not being certified is a sure sign of poor knowledge. This is the Full Disclosure Principle, which is the inverse of the Lemons Principle. In this case, good products drive down the price of bad ones. The good students will have higher scores than poor students, which prove their higher quality. Now, the employer can accurately distinguish between a lemon and a peach. Despite this, Udacity, Coursera and edX have all phased out free certificates. edX’s reasoning for giving away only paid verified certificates was very interesting — “Many of our learners have shared with us that their verified certificates have been extremely valuable in advancing their careers and in furthering their education. Through verification, as well as financial assistance, our goal is to make edX certificates both more meaningful and more accessible for everyone around the world.” The keyword here is more meaningful — they want the certificate to hold more value for those who have it.
What went wrong with these free certificates then? There are 2 sides to this answer. Firstly, MOOC providers only get revenue from Verified Certificates. Having the option to do a course for free and receive a certificate made users opt for this, causing them to lose revenue from customers who can afford a verified certificate. Secondly, a flood of free certificates would have inundated the Verified ones, decreasing its value. The certificates they obtain both demonstrate completion, which has a fairly low bar in MOOCs. A certificate is only valuable if it’s hard to get. Good students (peaches) found no additional value in pursuing a Verified Certificate, especially since it’s possible to cheat on both (and employers know that). If most applications have a MOOC certification attached, it becomes impossible to categorise on that basis. Employers would then distinguish on the basis of college or GPA, which makes MOOCs redundant as a signal. This is what edX meant by ‘making the course more meaningful’.
That’s why MOOCs no longer began giving certificates for free — it made them a poor signal. Now, they charge 49 dollars on average for a Verified Certificate. Why does making it expensive make it a better signal? This traces back to the reason why bright students opt to go to college. The college degree is a good investment to make, as the cost of it gets covered by higher wages in the future, on account of better signalling to employers. MOOC enrollments will now work the same way — bright students will be willing to pay for the certificate as they recognise the signalling power it will have. This helps them stand out in the crowd. For the financially weak, there is also financial aid provided to complete a Verified Certificate. Students who are less motivated will not pay for it, thus removing those who do not put in effort from contention.
The Future of MOOCs
Whether MOOCs can truly obtain the signalling power and education level that colleges provide is what remains to be seen. It is highly unlikely it will ever replace the need for a college degree, given how easy it is to game the system, even if you’re pursuing a Verified Certificate.This will probably be the biggest barrier towards acceptance as a replacement of college. Besides, to brandish college as only being worth the degree it prints is probably oversimplifying the learning that happens in a like-minded community. Colleges offer much more than just academic knowledge, they also help shape personalities. This is something a MOOC will never be able to do, limiting its ultimate utility.
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The original article can be found here — http://www.freelunch.co.in/?p=281