Underinvestment in Education - The Effects of Grades on Student Motivation and Performance

Abstract: This paper examines the effect of grades on student motivation and performance. As such, the purpose of this paper is twofold. First, it helps to explain how the current educational model, by its assessment of students through grades, affects student motivation and performance, which is fundamental for understanding the underinvestment problem in education. Second, this paper test whether incorporating the concept of identity economics in economic decision making, can better predict student behaviour than the standard models of education. This was done by a randomized field experiment being conducted on 372 sixth graders in Sweden, where the treatments being evaluated were designed to investigate the effect of grades, when it serves as a starting point on which students' future performances and outcomes are dependent on. The results indicate a negative average causal effect of grades on student motivation and performance. This is the case regardless of whether the grading system in place is criterion-based or norm-based. The negative effect of grades also differs across the grade distribution, and with respect to gender, where students with lower grades are affected more negatively, and where girls seem to be affected more than boys. Thus, the result of this paper call into question, the role and application of grades, in the current educational model. Furthermore, this paper suggests that the concept of identity economics, as incorporated in the educational context, can in a better way predict student behaviour than standard models of education.