I’m writing because I am catching up on the backlog of The Answer is Transaction Costs (TAITC), a podcast hosted by Michael Munger. Specifically, in an episode published August 27, 2024, a listener writes asking about what seems to be the extremely costly practice of interviewing college applicants prior to acceptance.
As it turns out, I work at a private university that enacted an interview policy in a quasi-random way and the university president gave me permission to share.
Initially, my university did not interview standard applicants. Our aid packages were poorly designed because applicants tend to look similar on paper. There was a pooling equilibrium at the application stage. As a result, we accepted a high proportion and offered some generous aid packages to students who were not good mission fits and we neglected some who were. Aid packages are scarce resources, and we didn’t have enough information to economize on them well.
The situation was impossible for the admissions team. The amount of aid that they could award was endogenous to the number of applicant deposits because student attendance drives revenue. But, the deposits were endogenous to the aid packages offered! There was a separating equilibrium where some fine students attended along with some students who were a poor fit and were over-awarded aid. The latter attended one or two semesters before departing the university, harming retention and revenues. Great but under-awarded students tended not to attend our university. Student morale was also low due to poor fits and their friends leaving.
Part way through an admissions cycle, we universally instituted scheduled mission fitness interviews after the online application form was completed. The interviewer would rate the applicant on multiple margins. The interview was a prerequisite to receiving an aid offer. Suddenly, we had our separating equilibrium. Low-desire students would not bother with the interview scheduling. High desire students would! Almost everyone scored well on the interviews because the filter was, mostly, scheduling the interview itself! The university could now target aid packages much better and attract higher quality students of good mission fitness. Retention and revenue improved along with student morale. Over time, our reputation improved, increasing the number of high desire and high stat students that apply, interview, and end up attending.
So, for my university, interviewing applicants was relatively cheap given that 1) the subset of mission fit students overwhelmingly self-selected to be interviewed while the poor mission fit students didn’t bother to interview and 2) the interview solicited useful information to help allocate scarce tuition aid dollars. This alone paid for the cost of the interviews. But the downstream effects on retention, revenue, and morale made the interviews a permanent part of our admissions process.
I mentioned the quasi experiment when the interviews became policy. The students who had been accepted in the same year but prior to the new interview policy had all of the prior worse stats: worse GPA, retention, and rates of deposit. The students who happened to apply just after the policy was enacted *and* who scheduled and participated in an interview had far better stats.
In this case, the transaction cost of scheduling and participating in an interview was only sensible to bear for those students who most desired to attend our university. And now we can identify them.
Economist Writing Every Day 