When Rational Students Choose Not to Study Rational Models

A puzzle in recent years has been the decision of so many Australian undergraduates to flock to business degrees in favour of economics degrees (one quarter of undergraduates are now studying business). This is despite Australian research by the University of Canberra’s Phil Lewis, Anne Daly and Don Fleming showing that economics graduates earn more than business graduates. From my (biased) perspective, this is a problem, since I regard the skills learned in economics as broader and more powerful than those learned in business. But the student market clearly believes otherwise.

It turns out that this is also an issue the UK is facing, and Ray Bachan (U Brighton) has a new paper out suggesting that one factor is that the chance of passing business is higher than the chance of passing economics. He also finds that women and ethnic minorities prefer business to economics – though of course, this only takes us one step closer to pinpointing what’s going on. His abstract:

This paper uses ALIS data to model the factors that influence the choice between Economics and Business Studies A-level. These subjects are often perceived as close curriculum options and possible substitutes in the UK. Subject choice is modelled using an underlying latent variable approach, which employs both a binary and an ordered probit. On the basis of a series of counterfactual exercises an overall average grade differential, a measure of their comparative difficulty in terms of students expected examination performance, is estimated to be 0.7 of an (old) UCAS point. The estimating equation suggests that a unit increase in the grade differential increases the probability of selecting Business Studies over Economics by approximately 16 percentage points. There is evidence that females are less likely to choose Economics over Business Studies, and the more able students, in terms of their average GCSE score and mathematical ability, are more likely to select Economics. There is little evidence of parental background characteristics exerting significant effects on the choice between these two subjects, but there is evidence of ethnic characteristics being significant.

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6 Responses to When Rational Students Choose Not to Study Rational Models

  1. Alistair says:

    Well that is interesting to note,

    I am in year 10 now and if I fail to get into Law then I will do something Business/Economics related and then do Law Post Grad. (I was considering doing the degree down at ANU). But every single careers advisor I have talked to have tried to convince me to do Business because “they are more respected by employers” (They said you can do Business but do a heap of economics subjects in it). As students often rely on careers advisors sould this be a problem. Also the Uni open days such as Sydney and UTS seem to be pushing Business more, there was bugger all on economics at the UNSW open day today, but heaps on business. Overall I think Economics is for me as I am more interested in government economics. Maybe a Eco/Arts degree would be good, but still my choice is only 2 years away.


  2. Business also has a more vocational name.

  3. Sinclair Davidson says:


    Economics is the way to go. Also give some thought to doing some accounting courses.

  4. Sacha Blumen says:

    I wonder if this is related to something that’s puzzled me in the last ten odd years. Why are so many undergrads doing commerce/business/media studies degrees, as opposed to things like engineering, science, arts (and also economics, from the post) ? I’ve lazily thought that it was people doing easier degrees, or doing courses that are more connected with immediately finding a job – but these are just my prejudices. Is there much research about this?

  5. Andrew Leigh says:

    Cam, perhaps we should get ourselves a better slogan, eg. “the business of economics is business…”

    Sacha, one thing that goes to your “effort” point was the fraction in Bachan’s paper who say they “think about the subject a lot, even in my spare time”. 33% for econ, 26% for biz.

    Alistair, Sinc is 100% right. Given what I know about you and your interests, you should definitely do economics honours, then perhaps a PhD. I’m not even sure you should bother with law.

  6. Neither business nor economics graduates do brilliantly in finding jobs relating to their course directly after completion – 56% for business graduates and 59% for economics graduates. Accounting is the best bet for jobs in Commerce faculties, on 80%. (Source: Graduate Destination Survey)

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