There is a growing concern about the value of university education. The main complaint is that it is becoming too expensive. However, Michael Ellsberg goes as far as to suggest we invest not in university education but in “the kids who are dropping out of college to start new businesses”.
There are many facets to this debate, but I just want to point out one thing: not all dropouts are created equal. The current people who succeed after dropping out are a highly self-selected bunch. They are people who would probably have done extremely well regardless of whether they had dropped out or not. In other words, they dropped out despite a high expected rate of success, which means their expected returns from dropping out were high.
As you increase the number of people who drop out, you are drawing upon a different pool of people, with different abilities and propensities to take on risk. The dropout rate is around 16% in the UK and and 17% in Australia. For the sake of argument, imagine that we increase the dropout rate to 50% next year and ask those dropouts to start up companies. Do you really think this will greatly increase the number of successful entrepreneurs who end up like Michael Dell, Mark Zuckerberg or Steve Jobs? Having read several biographies of such individuals, my understanding is that success in each case was due to strong personalities, a willingness to take on risks, childhood experiences (or lack thereof), self-motivation, and a variety of other factors. Being a dropout was part of that journey, but wasn’t the underlying reason for success.
The present system is broken; tuition is too high and the quality of education at many universities leaves room for improvement. As someone who studies innovation I believe we should encourage entrepreneurs. But I don’t think the solution is to have more students drop out. What I predict will happen is a change in the price of educational degrees (as suggested by Mike Ryall), but more importantly that educational approaches and instructional styles will change. Whether that change will emerge from existing institutions or from entirely new organizations remains to be seen. Where there is a pressing problem, there arises the opportunity to serve a market need.
Core Economics 
I could not agree more with you Kwanghui; Those drop-outs who have succeeded (with Bill Gates as their poster boy) are few and far between, and their backgrounds were often exceptional – with a supporting environment few of us have.
The solution is not to curtail knowledge, and certainly not for entrepreneurs: as a startup enabler, I routinely come across thoroughly nonsensical ideas and Business Plans – somewhere within the BP there is an arrant violation of the laws of physics, for instance (then some accuse me of ‘not thinking out of the box, thereby blithely assuming that stating that 1 plus 1 is three is somehow not a mistake – but a different, and equally valid, way of looking at the world – it’s not.) The phenomenon is widespread: Publishers of textbooks in Physics, for instance, are flooded with nonsensical submissions from people with no formal education in Physics who however aver that they have figured it all out, and, for instance, that Einstein was a misguided fool.
I also come across, more seldom, exceptional people with little formal schooling who however are extremely creative and bright, and see things and possibilities that their more educated counterparts would perhaps not necessarily conceptualize – because their ‘mind-screws’ are tighter. To succeeed however, these people surround themselves with experts in the appropriate disciplines. So it’s not all down to education, but also to personality, environment, spirit, and many more things beside.
Wasn’t it Bork, the Harvard President, who famously said ‘if you think education is expensive, try ignorance’ ? His point was even wider , to wit, beyond the narrow confines of economic life, a functioning democracy needs an educated electorate.
LikeLike
I think it’s problematic to dismiss the success of ‘university dropouts’ due to self-selection when the greatest challenge in assessing the ‘value’ of university education is the self-selection of students into it.
Additionally, Ellsberg argues that a willingness to fail and an ability to learn from failure are both integral skills for entrepreneurs, skills that may be actively discouraged in a university setting where (conformist, authority approved) resume building may be paramount.
If the economic gains to the individual arising from university arise primarily from signalling, and these individuals don’t need to signal their ability, why would they stay?
LikeLike
I enjoy this topic. There are MANY other examples of where people maybe could have done better should they not have “dropped out”. I don’t like that phrase as it has negative implications .
Or maybe not? Who knows. Mick Jagger, without checking, turfed the London School of Economics but he operates what is possibly one of the most successful corporate bands in history. Similar with Robert Plant, and Jimmy Page. Jim Morrison, quite a naughty boy with personal issues, apparently had an IQ about 155 (who knows? I have read, and it is hearsay, that he never took notes in class yet in tests obtained perfect results)
On the other hand we see Nobel Prize winners who demonstrate utter stupidity – to wit, Long-Term Capital Management. Markets are not Gaussian, you silly fellows.
LikeLike
Chris Ransford: It’s called the Dunning-Kruger effect.
LikeLike