Are law students rational?

A law professor writes:

There's one concrete thing I've noticed you haven't mentioned on your blog yet. At least half of all students who graduate from law school are ending up in jobs that do not require or prefer a JD. What purpose does legal education serve for that student?

 a. It is a $180,000 millstone.
 b. It has taught that student to think like a lawyer.

Even assuming that (b) is actually quite valuable independent of the ability to practice law, this defense of legal education has one teeny tiny little flaw: Students don't learn to "think like a lawyer" in their third year of law school. They basically don't learn anything at all. So let me recast that. What purpose does the third year of legal education serve for a student who will never work as a lawyer?

a. It is a $60,000 millstone.
b. Uh.

It occurs to me that current law students are hardly powerless. They are just taken for granted. We assume that they'll mostly return for 2L and 3L because mostly they have. If half of the 3Ls who felt hopeless about their future walked away from their final semester, 95% of the law schools in this country would be on their knees this January.

So...my question is this: Why don't they make like rational economic actors and get out?

On a related note, commenter Avor opines:

Forgive me for beating a decayed horse, but I still don't think anyone has really given a satisfactory answer to this question:

What difference will it make if the focus is on the reporting and not the easy money for loans? Law schools are NEVER going to be unable to fill 250 1L seats each year because there are more than enough folks who think they're going to be the exception to whatever negative numbers are out there.

Is it just that then everyone will feel better because they can then truly point the finger at the students/graduates and say "you have no excuse--you should have known better..."?

It's still going to be the same number of un/under-employed JDs. It's still going to be the same amount of loans/debt that needs to be forgiven at some point (death or discharge...whichever). The law schools are still going to get the same amount of tuition, which is going to continue to increase along with everything else, and education in particular.

Take a look at any of the school statistics on their ABA sheets. No matter how good the advice is to drop out after 1L or 2L, almost nobody is doing it.

The numbers still seem like a red herring to me. That's not to say there isn't merit in the claim that the schools should not be putting out bogus numbers, it's just to say that it won't change the outcome.

The optimistic take on this issue is that we have here is a classic information problem, and that if potential law students, or even as in the professor's example current ones, understood their actual situation the problem would be in large part solved by market correction: applications to law school would plummet, and various schools would have to shrink, cut tuition, or simply close. Let's call this the Rational Actor model.

The pessimistic take is that for a variety of reasons people are not actually rational maximizers of their own utility to nearly the extent classical economic theory claims, and that, as I believe David Ricardo or Karl Marx first pointed out, there's a sucker born every minute. Call this the Lottery Ticket model.

An acquaintance of mine, a professor at a top business school, thinks state-run lotteries are just wonderful because they function as a tax that people pay voluntarily.  (In the typical state lottery half the revenues from ticket purchases are distributed in winnings while the other half are kept by the state).  Now if one considers a lottery ticket an investment buying tickets would appear to make no sense, as the expected long-term return on investment is negative 50%.   Of course all human behavior can be modeled in "rational" economic terms if one simply makes enough assumptions, and the obvious assumption to make here is that playing the lottery is not investment but rather consumption: people get positive utility from the mere act of gambling, without regard to whether gambling is otherwise negative sum to them, so voila, conceptual problem solved.

But this is hardly the only way to solve the apparent conundrum. We could for instance assume that people engage in magical thinking ("I am a lucky person," or "I'm due to win" or "My horoscope says today is a good day to gamble" etc.).  Or we could assume that it's rational for a person in a sufficiently desperate situation to engage in behavior that creates a sense of hope that this situation can be changed in a significant way.  This assumes that hope for the future is valuable enough to purchase at even what appears to be an otherwise unacceptably high price, given the person's present circumstances.

I suggest that all these models help explain why law schools continue to have no problem filling their classes, even as the price of law school skyrockets and the ROI from a law degree plummets.  (In what follows I'm ignoring those students for which law school continues to be, from an ex ante perspective, a rational choice in conventional terms. Clearly there are still many such students, although the percentage of current and prospective law students who belong to this category is, it's safe to say, vastly exaggerated by legal academia as we engage in various forms of self-justification).

(1) Part of the problem is simply informational in the most straightforward sense: prospective students, and to a lesser extent current students, don't realize how bad the job market is, how miserable so many practicing lawyers are, and how much all this is actually going to cost them, both financially and psychically.  This is why transparency matters, although it's very far from a cure-all.

(2) Some law students really are engaged in consumption rather than investment.  These are people who are killing time while acquiring a social status marker, or people who genuinely enjoy the process of legal education itself, without necessarily expecting that the money they're expending will result in a positive return on investment (Obviously such people are either rich or reckless or both).

(3) A lot of law students, and especially prospective law students, engage in magical thinking.  For irrational  reasons they believe the odds don't apply to them: They "believe" in themselves to the point where they dismiss the assumption that having typical qualifications for a student at Law School X means that the most likely outcome for them is that for a typical student at Law School X.  Here, I suspect the self-esteem movement among parents and educators has done a certain amount of intellectual and emotional damage, as has the classic American Horatio Alger/Protestant Work Ethic message that the normal predictions that can be made on the basis of your life circumstances won't end up applying to you if you just work harder than everyone else. (A commenter reminds me that irrational attitudes toward sunk costs play a significant role as well: that one has invested a lot of money in a bad investment isn't supposed to be a reason to keep throwing good money after bad, but few people are wholly immune to this type of thinking).

(4)  Finally, we shouldn't overlook that for a certain number of students law school is both a bad option in the abstract, and the best option that is actually available to them.  For these students, law school is at present the lesser of various evils, in that it at least creates a kind of hope for the future, even if that hope is for something as uninspiring as, realistically, a moderately well-paying job that they won't hate as much as some other things they could end up doing.

In the end, the extent to which the Rational Actor and Lottery Ticket models are more accurate descriptions of the market for law students depends on how many people actually fall into these various categories.  In addition to simply being the right thing to do, increased transparency will allow us to learn much more about that issue than we know at present.