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

(Comstock)

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.