Paying People to Quit: What Law Schools Can Learn From Zappos

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My favorite incentives book tells the story of how after a week of training, Zappos offers new employees a one-time, one-day offer of a cash bonus if they will quit (As noted in the Freakonomics Radio hour, “The Upside of Quitting”). I describe this as an anti-incentive because even though the Zappos offer on its face gives employees an additional reason to quit, in practice it keeps employees on the job longer. 

The vast majority of trainees turn down the offer during training – resisting the temptation to take the money and run. Then almost no one quits in the initial months after training because they’d feel like fools to quit for nothing when they could have quit for money. The cognitive dissonance would be too great. This is the power of resisted temptation.

But in a recent Slate piece, Akhil Amar and I deploy the Zappos idea for a different purpose – to reduce the concern that law schools are admitting students who are unlikely to pass the bar. We propose:

Law schools might analogously offer to rebate half of a student’s first-year tuition if the student opts to quit school at the end of the first year. (If the student has taken out government loans, this rebate would first go to repay this debt.)  A half-tuition rebate splits the loss of an aborted legal career between the school and the student. Each has skin in the game, so students will not go to law school lightly, and law schools will have better incentives not to admit students likely to fail.

Unlike the Zappos offer, the idea here would be to “mark the end of the first year, after students have received their grades, as a salient decision-making point.” The tuition rebate offer combined with updated information on their predicted life in the law might guide students to better decisions about whether to continue their legal education. With respect to OneL’s, we are using the offer to try to create a focal time and help reduce status quo bias.

Joseph Leff, after reading our Slate article, suggested an additional behavioral improvement: law schools might be encouraged to offer a master’s degree in law for students who decide to depart after just a year.  (Some Ph.D. programs offer analogous terminal master’s degrees for students who decide not to write the dissertation).  Joe helpfully points out that a masters-in-law credential “could be attractive to employers in business, journalism and many other fields [and] psychologically it feels better to have earned an MA rather than be a ‘dropout’.”

Of course, it’s a scary thing to offer half-tuition rebates. A law school’s budget would be devastated if most of a first-year class accepted the offer. The cash-to-quit idea was initially scary to Zappos too. The shoe seller started out by offering trainees just $100 to quit. And only after seeing the results gradually raised the quitting bonus to $500, $1000, $1500. The Offer had grown to $2000 when my book was published. And our editor at Slate discovered The Offer is now a whopping $4,000.

So if having a law school offer to rebate half a student’s first-year tuition seems scary, regulators might think of starting by dangling just $4,000. Right now first-year students have the option of quitting for nothing – but might feel locked in to stay the (academic) course. Even a modest carrot to quit might make them pause and think twice before signing on to a second and third year.

Our proposal for enhanced decision-making also is unusual because it suggests giving students better information about the “opportunity cost” of continuing their legal education. Channeling Billy Joel, I tell my students that opportunity cost is “the price that you pay for things that you might have done.” Akhil and I proposed that people with government loans be required to report back their salaries for 5 or 10 years whether or not they complete their law school education. This information (combined with some predictive analytics based on a student’s entering credentials and first-year grades) would let law schools give first-years a better idea of their prospects on both sides of the decision tree.

Rick Brooks and I showed in this 2005 article how information about entering credentials could produce a grid (on p. 1852) with predictions about the probability that an entering student will become a lawyer.  With the added information of first-year grades and salaries for both those who continue and those who drop out, law schools could provide better predictions about the value of the legal opportunity as well as the opportunity’s cost.

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  1. Hassan says:

    Interesting angle. My initial thought: Is there an alternative that rather than incentivizing a socially undesirable behavior (quitting) reinforces a positive behavior such as academic achievement during 1L?

    I am currently in the process of applying to Law School and in navigating the financial aspects of paying for a legal education I believe there is room to incentive 1L academic achievement.

    Obviously, this would apply to candidates that do not foresee quitting as a feasible option. For instance, I know that I will have to take out loans to pay for my legal education but I am also extremely confident in my decision to to pursue the best legal education available to me. I would even be willing to negotiate away (or incentivize depending on your perspective) any leverage I may have as an applicant to multiple law schools.

    Do you think an agreement could be arranged during the admissions process where a Law School could offer binding acceptance in tandem with a financial aid package in exchange for that student agreeing to allow interest rates on any loans taken to finance that legal education to be reflective of the applicants position in his Law School class at the time of graduation?

    If this agreement opened up the highest caliber of Law Schools in addition to being personally motivated to gain admission into a high caliber Law School only be personally I would also be financially incentivized to continue to do well beyond Law School. I think some applicants, especially minority candidates like myself, would even be willing to dedicate a pre-determined percentage of their first year’s salary directly to paying of their legal education.

    Do you guys believe a situation could be arranged where Law Schools and Student’s can structure and incentivize financial aid for both parties?

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    • Travis says:

      As you will quickly learn, there is already plenty of incentive to motivate 1L’s.

      The problem with your proposal is that law schools are basically a zero sum game when it comes to academic achievement, so in essence while you may be ‘incentivizing’ academic achievement, the school will still have its quota of C’s to give out (or whatever the equivalent grade is, pass, etc.)

      So then what you end up with is students who have tried extremely hard and put a lot of work into their education being punished with the stick end of the incentive, which may be too much for many students. Your system ends up being more about taking a voluntary disincentive which seems less palatable.

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      • Hassan says:

        Yes, but this assumes that that graduating in the Top 10% of any your law school class would be the same value to all applicants in the admissions process.

        I would have no problem volunteering for disincentives if declaring so would allow me the opportunity to attend a top tier school that I could otherwise not afford or get into without demonstrating a reason to succeed beyond the admissions barrier.

        Granted this proposal would be applicable to view applicants but to the few applicants that would value the benefits of giving away leverage in the admissions process the return of investment would be incredible.

        I can’t speak for anyone else but I know that if I had the option of attending a Top 5 Law School with debt in exchange for waiving my right to ever get an A in a course or a full ride to the 25 ranked Law School it wouldn’t even be close. I would hands down fully commit to the debt and poor ranking at a T5 school. I would take my chances in making up the difference in opportunity cost come OCI’s during 2L

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      • BL1Y says:

        Without any As on your transcript, there’s about a 20% chance you’ll walk away from OCI empty handed, even at a top school.

        (Assume the bottom 10% at a top school have trouble finding jobs. With no As, you’re now in the bottom half of the class. The bottom 10% is 20% of the bottom half. You’re basically playing financial Russian roulette.)

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    • Jason says:

      Why is quitting law school a socially undesirable behavior? I believe that there is already a glut in the legal marketplace, and incentivizing individuals who are generally smart and hard-working to pursue another field where they may have a competitive advantage seems like a worthwhile investment.

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      • Hassan says:

        Once in Law School there is already inertia in the sense that you have spent 1 year as a law student. It would be dificult to rationalize quitting as not failing. I think that the master’s in Law provides a key justification and makes the transaction feel more like a modification rather than a buyout.

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      • aka_ces says:

        To promote socially desirable behavior, going to law school should be penalized …

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    • caleb b says:

      Know the following before entering law school:

      Financially, it is a losing decision. At this point in the market place, 90% of law school students are losing money in deciding to go. Most of them, a lot of money. So even if you get that sweet corporate job, you’ll work 90hrs/week and get paid as much (after loans) as the paralegal with an online degree. Do the math before you go.

      Also, there is a 90% chance you won’t be in the top 10%. Don’t expect it you’ll get in, because you won’t.

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      • Hassan says:

        That’s awfully pessimistic :\

        I feel its possible to get what you put in it though. I guess it is plausible to come out on the losing end financially if you attend Law School with the sole intention of getting to a specific job market on the other side. On the flip side, I see how it is possible to over-estimate you’re ability to reasonably out perform your classmates at other higher ranked law schools come time for interviews.

        The answer doesn’t seem to be one or the other but I have always been off the camp that access to honest information during the admissions process can only serve to promote accountability on the part of the student and the institution.

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      • Enter your name... says:

        I believe that the pessimism is warranted. Effort alone is not what makes someone a top-ranked law student. Your rank in your class is not based solely on your work. It’s based on the work of all the other students, too.

        I believe that we would see less of this cognitive distortion if fewer of our bright students spent so much time in mixed-ability classes. When you have easily been “the best” through 17 years of school, it’s hard to imagine what will happen when you compete with your intellectual peers for the first time in your life.

        “But I got 170 on my LSAT,” they say. “That means I’m a winner!” The fact that everyone else in the room did at least as well — and that they are now the mediocre, middle-of-the-pack student — is hard for these students to grasp.

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      • caleb b says:

        If you are looking for honest information, do not accept any from a law school. Law schools completely fabricate their employment numbers and average starting salaries of graduates. Do a internet search along this topic and you will be flooded with reports of how law school graduation statistics are self-reported, not audited, and full of misrepresentations.

        I’m not trying to talk you out of being a lawyer. Please pursue your passion. Just know that it is highly probably, nay likely certain, that your decision to attend Law school will be a net negative from a financial perspective. It’s so skewed against you, that in all likelihood, you’d be better off not working at all for three years than if you decide to attend Law school. This is not an exaggeration and I will repeat for emphasis: If you decide to attend law school, it is almost guaranteed that you will be financially worse off that if you chose to do nothing for three years.

        I married a lawyer (that’s how I know), I have a lot of lawyer friends. They can’t find jobs, they’re loaded with debt, and they regret going to law school. And I live in a state with low unemployment! I personally know three students from the TOP 10, not 10%, THE TOP 10, who still don’t have jobs from the class of 2010.

        Boston College Law student requests refund
        http://www.bostonherald.com/news/regional/view.bg?articleid=1290088

        Law school…a sucker’s bet
        http://online.wsj.com/article/SB10001424052970204224604577030562170562088.html?mod=WSJ_Careers_CareerJournal_5

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      • Hassan says:

        I can see the how attending Law School could ultimately end up to be a net negative financially but could it be possible that the tension come be a result of frustrated expectations? Even student’s who attend the same institution could have different expectations from the same school. I think a year is adequate time to give both parties an opportunity to evaluate their commitments to each other. It sort of reminds me how couples who choose to go through pre-marriage counseling during the process of their wedding.

        Your equation above assumes that little can be done in the three years of actually attending law school. Which I guess isn’t totally right or wrong since where you sit depends on where you stand. However, assuming little can be done during Law School sounds like a pretty counter-productive self-fulfilling prophecy.

        While I recognize the rationale in reasonably predicting and planning ahead financially, I would strongly prefer to root my decision to seriously pursue a legal education in my potential for success rather than fear of perceived placement three years from now. The bottom line remains that in comparison to the rest of the population, someone who attends a Law School is in a significantly better position to pass the bar or access opportunities within the legal profession.

        As articles on this blog prove time in time again,there is also a reasonable chance that “I am blind to my own blindness.” I will never be able to get it a 100% right and that’s ok because that would also make me an outlier (albeit it is usually on the more socially acceptable end of the spectrum one depending on the situation). Since, its difficult to make me any less of a legal professional, it can only help my case to give admissions offices a chance to surprise me :)

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      • Andy says:

        I agree with you 100%. I graduated from the UO law school in 2010 and passed the Oregon Bar Exam only to find no jobs out there for people like me. I managed to accumulate over $110,000 in federal loan debt in 3 years of law school, plus about $7,000 in private loans for bar exam purposes. It’s like debtor’s prison out here. I would have never applied to law school back in 2006-07 if I knew it would turn out this way. Anyone reading this who is considering law school…run away. It simply isn’t worth it. You will live in a constant state of worry about your finances, and it is virtually impossible to ever get ahead in life with this massive debt looming over your head.

        My advice: go to a local community college and become a registered nurse. The programs are typically cheaper than those at traditional universities, and some programs even pay for your schooling if your grades are good enough. Being a lawyer and going to law school is overrated. This is coming from a new lawyer (less than 1 year in the field) and I already regret the decision.

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    • Cory says:

      I like to remind people that 1/2 of every law school class will be below average for the first time in their lives. You can’t create new incentives for success because every one of them believes that they will continue to be at the top of the class.

      You need to remember that every law student shows up with pretty much the same credentials. Then, they are forced into a curve that will spread them out, no matter how tight they would be grouped if they were competing against the population (or even just law students) in general.

      If you figure that everyone is pretty much equal going in, then your chances of landing a successful, well-paying job are about 1 in 10 (at a top flight school), 1 in 20+ at a lower-ranked school.

      As I once told someone who was considering law school, go home and flip a coin. Your chances of success at a great school require you flip heads three times in a row. If you can only get into a 4th tier school, you need to flip heads five times in a row. Flip a single tails, you have $150,000+ in debt and no real job prospects. Do you really still want to go to law school?

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  2. Mike Keliher says:

    there will also be a quality improvement part of this. If the “masters” concept is included, the top law schools will cull out those who are disinclined to become lawyers and will replace them with the top students in second tier law schools who were not admitted as 1Ls. This will force all programs to up their game as it creates mobility for the best students who will chose the best programs.

    Great idea all around!

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  3. Cary Collins says:

    Would students be able to accept the law school offer to rebate 1/2 of tuition at the end of the first year and then transfer credits to another law school? How would you make it binding to opt out of an entire profession? If the process can be repeated then law school will only cost 3/4 to 1/2 what it did before. ;-)

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    • Hassan says:

      Binding in terms of the admissions process. Most top tier schools have done away with Early Decision programs

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    • Travis says:

      Well it couldn’t really lower tuition costs overall the way law schools are structured. The most it could reduce is 1/2 of one year’s tuition, or 1/6 of the total tuition, even if you managed to “cheat” the system because if you are admitted to another school as a 1L you have to take the 1L classes again. If you are admitted as a transfer, you are a 2L (or 3L) and are not considered a first year student anymore and thus presumably not able to take advantage of the incentive.

      Further, I imagine the simple thing schools would do is to not give “credits” to those students who took the drop out incentive.

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    • Enter your name... says:

      If you read the linked article, they propose that re-enrolling in any law school (perhaps during a fixed time period, e.g., five years) requires you to re-pay the rebate.

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  4. Joshua Northey says:

    Isn’t the easiest way to fix this simply to cut back on the huge amount of subsidies provided for education? You cannot be asking 18 or 22 year olds if they want huge piles of debt and expect them to answer rationally when they receive no financial literacy education at school (which is its own problem).

    You could tie the government subsidy to expected earning power of the degree. So the government will help underwrite your desire to become an electrical engineer, but won’t underwrite your desire to study art history.

    If that means it is mostly rich kids studying art history, well that is just a side benefit.

    The reason college spending is spinning wildly out of control is that the consumers are insulated from the costs.

    Another system could be that you can only get loans for X% of your tuition, and the rest must be paid out-of-pocket.

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    • Travis says:

      What does that have to do with the posted article?

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      • Joshua Northey says:

        The article and the discussion around it in the media is chiefly about giving incentives to students to not take on so much “bad” debt (i.e. debt that is a bad long term personal economic decision). Thus it is the same issue.

        One solution is to give them incentives to quit early.

        The things I proposed are a different solution.

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  5. Travis says:

    This is a pretty interesting idea, though I imagine it would be frightening for any student admitted to a mid range school. The prospect of having the bottom half of the 1L class drop out would make second and third year grading even that much more brutal.

    It is a good idea though, and as a 1L one of my professors gave a speech (twice, even) about how some of the students he knew that did the best took a year off (or more) after their 1L year and then returned and performed significantly better. He was also actively discouraging people who didn’t like the law, or didn’t do well to quit (or at least think about it.)

    I think there are a few factors at play though. First, is the stigma of quitting (in fact one of the first comments called it “socially undesireable behavior.” But the fact of the matter is that people should not be so averse to quitting. Not everyone excells at everything, and trying to force ones self into something because they don’t want to be labeled a quitter is much less efficient.

    Another problem is the way that law schools work. Rankings mean FAR too much, grades are over-relied on, and I would be lying to say that it was much easier to climb to the top of the law school pile on the backs of people who simply didn’t have the same aptitude as me. That is to say, for a proposal like this to work it would almost require a fundamental restructuring of the way law schools operate right now. As hinted at before, just thinking of going from being in the top 10% 1L year, then dropping to the top 50% 2L year because the bottom 50% dropped out would be soul crushing, and probably career crushing, but it would inevitably happen because of the way law schools rate students, and because of the way schools are ranked.

    Your proposal seems like it might also cause more problems. The system might work if it were like medical schools, which are much more tightly regulated, and generally more prestigeous, but there would need to be analysis specifically geared toward the impact on the bottom teir of law schools in the US, along with what those scools might do in response to such a scheme becoming popular.

    Ultimately, to me it seems like the ABA needs to first get off of its rear and start regulating law schools like the body is supposed to. There needs to be better reporting, and better control over how schools advertise themselves. Having law schools report employment statistics that include graduates working as baristas, for example, is downright unethical. Once those issues are solved, maybe student incentives can be played with more effectively.

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  6. Pshrnk says:

    Is this not a recipe for grade inflation?

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    • Enter your name... says:

      No, not in this instance. Unlike the rest of American education, law schools still grade on the curve. Although the formulas vary, imagine a system in which the top 10% get the highest marks, the bottom 10% fail, and everyone else is ranked in between.

      The top 10% get the “A”, even if their work is horrible. The bottom 10% get an “F”, even if their work is objectively quite good. They use this grading system even if there’s only a single, minor wrong answer in between the top and the bottom. Under this system, grade inflation is impossible.

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  7. Ric says:

    A master’s in law lends too much credence to the notion that a three year JD is an actual academic doctorate, which is fairly absurd. JDs are really only masters level work in the first place.

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  8. Jason Kawalsky says:

    Hidden due to low comment rating. Click here to see.

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