Bid Farewell to Your Points

Wikimedia Commons

Wikimedia Commons


WASHINGTON – It is every SAISer’s favorite time of year: bidding season. When I first learned about the bidding system at orientation, I was tickled by the idea of employing the classic microeconomic principle to enrollment. My initial amusement was quickly diffused when I realized that 1300 points would limit me to taking only one or two of the most popular classes offered at SAIS. By my second semester at SAIS, I identified three major flaws in the system:

1)   Class Price Inflation: Like any dedicated student of economics, I downloaded historical bid report data to Excel and fitted trend-lines to popular courses. Even with erratic outlier semesters, I saw that clearing prices generally increased over time. The data reflects logical auction behavior: students assume that the clearing price will be approximately the same this year as last and bid marginally (or sometimes excessively) higher than last year’s price. With a fixed number of bid points, this means fewer successful bids.

2)   Lack of Free Market: There are students who drop 1300 points on a class in their final term and many others who leave SAIS without using all their bid points. Econ 101: this is inefficient. What if we could sell points to other students? I admit, there are some flaws in this idea. Selling bid points for money seems unfair among unsalaried graduate students. But I would gladly give you my dining dollars. My notes for the CNS core exam? Dance lessons?

3)   The Bologna Factor: Let me start by saying, I love all of the Bologna students that I have met. But very rarely do they use any points during their first year in Bologna, and very often do they dump 1300 points during their last semester in DC. Other schools, like Northwestern’s Kellogg School of Business, subtract bid points from students who study abroad so as to not give them an advantage compared to the home campus. The counterargument is that the Bologna bidding advantage compensates for them having fewer course offerings in their first year. Somehow that does not satisfy me and my 147 remaining points.

But It Could Be Worse

On the bright side, our system does not exploit naïve students that have not benefited from the Corporate Finance lecture on arbitrage. Consider Wharton’s pre-2012 multi-round bidding system, which operated more like the stock market. Each year, a handful of savvy second year students bid on required first year classes in the first round of bidding, driving the price of those classes higher. The second years sold those classes in later rounds, making a bid point profit margin that could be spent on the classes they actually intended to take. (Still want that dual-degree MBA?) Wharton has since switched to a more “equitable” single-round system.

I also am grateful that some of my SAIS professors have increased the cap on classes that threatened to go to bid – because there is just no reason why five extra souls in Econometrics would affect the learning outcomes of the first 35 enrolled. At University of Chicago’s Booth School of Business, where all classes go to bid, members of the administration and faculty perceive that the clearing price reflects the quality of the professor’s teaching. This type of thinking could incentivize professors to purposely choose popular time slots and enforce strict class caps. Dear SAIS Professors, the clearing price means nothing. But your willingness to add on second sections of a popular course means everything.

…But There Is Still Room for Improvement

I have witnessed conversations with SAIS administrators about the bidding system – and sorry folks, it is here to stay. That said, with such a wealth of economic knowledge in our school, surely we can come up with viable tweaks to the system. Here are a few ideas to get the wheels turning:

1)   No Carry-Over of Bid Points: MIT’s Sloan School of Management awards a fixed amount of points each semester that cannot be carried over to the following semester. Imagine – we all start on equal footing each semester, and we spend all our points immediately rather than saving up for one course that may not even be offered in the future. Pro: No DC second year disadvantage. Con: If 30 students bid full points on a 20 person class with no priority, the purpose of bidding is lost. Sloan’s system works because students must bid on all of their classes each semester.

2)   No One Pays Above Clearing Price: It is truly a shame when a student bids 200 points on a core economics requirement that clears for 5 points. What if the 195 extra points were refunded? In other words, everyone pays exactly the clearing price. Sloan, Kellogg, and other business schools use this second-price (or Vickrey) auction model. Pro: Everyone (except for the clearing price bidder) feels good because they are paying less for the class than what it is worth to them. Con: Students who have not internalized auction theory logic may bid higher than their actual value of a class because they believe they will reclaim most of their points; this could raise the clearing price. Never assume rational behavior.

3)   Increase Bid Point Disbursements: Earlier I mentioned that class price inflation outpaces our stagnant bid point allocations. We must rally for an increase in bid point incomes commensurate with the class price inflation! And do not even think about a chained CPI (Clearing Price Index) calculation. There is no substitute to Behavioral Sociology of Conflict at this school!

Any changes to the reigning bidding system will take place long after I graduate, but I wish the best to future generations of SAISers that just really wanted to take one of Professor Sobol’s emerging markets classes.