In the 1960s Yale University began offering students an alternative to taking out student loans. Instead, students could attend Yale in exchange for a specified percentage of their earnings over a significant length of time. Yale used historical data to determine the percentage so that the program would pay for itself - large payments from high earners would offset the smaller payments from low earners.
a. If you were planning on becoming a Wall Street financier, would you be more likely to take out loans or enroll in the Yale program? Why?
b. If you were planning on becoming a missionary, would you be more likely to take out loans or enroll in the Yale program? Why?
c. The tuition program turned out to be a financial disaster for Yale. Do your answers to (a) and (b) shed light on why? Explain.
d. What kind of information problem did the Yale program suffer from?