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Sunday, December 05, 2004

Morale Hazard

In Economics, there is a concept known as moral hazard that attempts to describe human behavior in response to particular circumstances. For example, people who drive SUVs believe their cars to be safer, and as a result, will be less likely to take precautions driving in adverse weather. In this term we did a case study about the Argentina economy and how, because the policy makers in that country knew that the International Monetary Fund would bail them out, did not take measures to control their increasing deficits.

It occurred to me that a similar phenomenon could exist in the WEMBA program. Because the Executive MBA program is so lucrative for Fuqua, the program staff would be hard pressed to fail any of the students and risk the loss of funds from companies subsidizing the tuition of their employees. Knowing this, WEMBA students may not study as hard as if they knew that failure was a real possibility, and as a result, that causes them to perform less well on finals.

For me, it seems like I have to get to the end of the term before everything starts to come together, supply and demand curves move in predictable ways, and concepts and computations come into focus. It’s a pity it comes at the end of the term, when I'm time-crunched and cramming for finals.

One last parting thought (shot) about this Term. What do finance and accounting professionals get out of taking MBA core courses? I can only imagine it must be drudgery and tedium for folks that do this for a living to sit through a class about trading options or doing activity-based accounting – and torturous for poor souls like me seeing this stuff for the first time.