A Portrait of the Liberal Artist

Here are a couple of hypotheticals illustrating the insights of prospect theory. They're taken from Daniel Kahneman's new book, Thinking, Fast and Slow:

In addition to your present wealth, you are given $1000. Would you prefer an additional $500, or a 50% chance of gaining an additional $1000?

In addition to your present wealth, you are given $2000. Would you prefer an additional certain loss of $500, or a 50% chance of losing an additional $1000?

These situations are identical in terms of what economists call expected utility: Each generates an expected gain of $1500 over your previous situation, no matter what choice you make. If you are indifferent to risk then you won't have any reason for preferring any of these scenarios to the others. Yet in the first situation the vast majority of people prefer the sure thing to the gamble, while in the second an equally large majority prefer the gamble to the sure thing. Why?

The answer is that people hate losing more than they like winning. This is why most people are risk averse when considering potential gains but risk seeking when considering potential losses.  They (we) consider the mere fact of being a "loser" a bigger negative than the fact of being a "winner" is considered a positive. And this psychological fact helps explain how law schools make money.

Consider this discussion on TLS regarding whether Virginia is worth sticker (that this discussion is even happening on a site like TLS is itself a sign of progress).  After several people -- including a current UVA law student -- suggest that it isn't,  a poster responds:

For many of us who want to be lawyers and have shitty liberal arts degrees, paying sticker at a T10 law school with a 50/50 shot at a[n initial] 6 figure income is a "safe" gamble compared to our alternatives. There are no guarantees.

Another liberal artist [h/t JDU] expands on this:

There really aren't a lot of options for a large number of college grads. For those of us who attended average undergrads, didn't major in engineering, and don't have any connections, the likelihood that we will only be able to work retail/food service jobs (or--if we're lucky--a 35K or less a year job) is very high. Higher than one's likelihood of not landing a good job from a top 14 law school. And before someone responds with the obligatory "but if someone has the credentials to get into a top 14 then surely they have many other great options" that's total garbage. The barrier to entry for law school, even a top one, really only consists of a high LSAT and a 3.0 (and really not even the latter depending on how high the LSAT is). The barrier for getting a good paying job straight out of undergrad is MUCH higher. Often it requires specific very difficult majors (engineering/accounting etc.) that one would have had to have chosen at 18 years of age; or a degree from a prestigious institution (again something someone would have had to have the foresight to choose at 18), or that classic way that most people get great jobs--connections.

For many, law school is the one ticket into the middle or upper middle class lifestyle. This isn't the 80s or 90s where entry level jobs are relatively plentiful and are good long terms paths to success. Companies are NOT trying to hire young college grads and work is being outsourced. All of these so called "options" for recent college grads that people on this forum seem to think exist are mostly out reach for the average college grad. Ironically enough, as much as TLS accuses the average college student of not knowing how bad things are in the legal field; and of being out of touch with reality. The average TLS poster is even more out of touch with how bad things are for those who only have a college degree.

And there you have it.  Law school -- even a top 10 law school -- is a bad gamble, but a bad gamble is going to be preferred by many people to what they consider a certain "loss," even if the expected return on that gamble is worse than the certain loss.

So, in addition to the people who remain confused enough to consider law school a good investment in straightforward terms, legal academia is living off the desperation of bright ambitious young people who have looked carefully at their options, and concluded that in a "post-industrial economy" they're all bad.  Such people are considering choices between what they see as potential losses rather than potential gains, so as a consequence they're risk-seeking.  Better to borrow $200,000+ to go to George Washington (a gamble that at present has perhaps a 10% chance of paying off) than to take the smaller but more certain "loss" of accepting a low-status low-wage job with little prospect for advancement.

Some day this war's going to end.