The publicized tuition at liberal arts colleges is misleading. Over the years, these colleges have drastically increased their advertised tuition, while giving large scholarships to students, which often cut the tuition cost in half. Why have these colleges increased the advertised tuition rate if they do not intend to charge the full price? Colleges do this because their administrators believe the high-advertised tuition price signals a high quality experience and actually makes potential consumers believe their service is more valuable.

As shocking as it may seem, there are cases when people are willing to pay more for a good or service simply because it has a high price. In his book Predictably Irrational, Dan Ariely tells a story of a merchant who was originally unsuccessful selling black pearls. The merchant had a jewelry storeowner display the black pearls next to other expensive jewelry. The black pearls were given similarly high prices. Customers saw the high price and assumed the black pearls were valuable, so they were willing to pay the high prices.

Administrators at many liberal arts colleges believe a college education and the purchase of black pearls are similar purchasing decisions. They believe if their school charges a high price, then the families of students will believe the education provided by this school is worth the same amount as the education provided by schools with similar price tags. That is, the administrators believe if their school charges the same tuition as, for example, Trinity University, then parents will believe their school is roughly comparable in quality to Trinity University.

I think these administrators are wrong and the lesson from the pricing of black pearls does not apply to the pricing of college tuition. The dynamics of these purchases are fundamentally different for several reasons. First, buying a black pearl is a onetime decision. The buyers cannot evaluate their satisfaction with the purchase before deciding to buy more black pearls. In contrast, colleges charge tuition every semester. Therefore, the student’s family is faced with a decision of whether to pay tuition eight different times over the course of four years. If the student feels the quality of education does not justify the cost, then the student does not have to come back for the next semester. Students have the opportunity to judge the school’s quality first-hand during their first semester at the school. After their first semester, the students do not need to rely on a tuition price to reveal school quality because they will know about quality first-hand.

Second, there were no sources that revealed the value of a black pearl. It was a new product and consumers had to use their own judgement. In contrast, there is all sorts of information about the quality of colleges. Magazines produce rankings, schools publish statistics such as graduation rates, average salaries of graduates, number of internships by students, number of students who go to graduate schools, and so on. Potential students can use this information to determine the value of a school.

Liberal arts schools would be better off if they reduced their tuition to the typical post-scholarship price that they actually charge. The schools should then make the case they provide a valuable education at a reasonable price. The liberal arts schools should make an effort to trumpet their successes, like touting the percentage of their pre-med students who get into medical school. Liberal Arts colleges have a compelling story to tell about their value. They should tell the story, rather than relying on a high tuition price to do it for them.

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Joe McGarrity is a Professor of Economics at UCA and can be reached at joem@uca.edu