What happens when statistical models don’t work?

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While much of the blogosophere I follow has been debating the math of newspaper payment models (which has been especially amusing, as most of the people debating did everything they could to avoid taking a college math course), I’ve been wondering about another marketplace that is about to learn whether or not its economics and “business model” are flawed. (Or, if not flawed, it may provide some insight into how bad (or good) the economy may really be.)

I’ll admit, I have a personal interest in this economic indicator, as the 18-year-old who serves as my in-house focus group allows me to have an up-close and personal look at this marketplace — higher education admissions.

Specifically, what, if any, effect does the current economic meltdown have on college admissions this year? The New York Times has a story today that explores the dilemma facing college admissions people. (But first, let me say how much I respect and admire, yea, love, those who do this type of work at one of the schools to which the 18-year-old has applied.)

Quote:

“Typically, they rely on statistical models to predict which students will take them up on their offers to attend. But this year, with the economy turning parents and students into bargain hunters, demographics changing and unexpected jolts in the price of gas and the number of applications, they have little faith on those models. “Trying to hit those numbers is like trying to hit a hot tub when you’re skydiving from 30,000 feet,” said Jennifer Delahunty, dean of admissions and financial aid at Kenyon College in Ohio. “I’m going to go to church every day in April.”

In the next few weeks (especially April 1-15) through the fall matriculation at the nation’s colleges and universities, there will be a great opportunity for economists to study if “selective” colleges and universities are immune from economic cycles that the current meltdown has shown affect other “can’t lose” investments.

Could this year prove to be what Barbara Fritze, vice president of enrollment at Gettysburg College, describes as being “like the dot-com bubble burst for higher ed. We’ve been in this growth mode for a period of time. Now there’s a real leveling going on.”

Or what if it’s worse than the dot.com bubble burst? What if it’s like the sub-prime, Wall Street meltdown burst? Or what if it’s not like the meltdown, but it is a part of the meltdown like, say, the falling prices of real estate, financial markets and commodities. Many of those elite universities have seen their endowments fall in the same way 401Ks and real estate have dropped. And the New York Times story doesn’t even mention the effect the global economic meltdown might have on the rate of acceptances by full-tuition-paying international students who apply to such universities.

Perhaps there is, as we’ve been led to believe, an endless supply of over-achieving applicants to these selective institutions — along with a limitless source of tuition funds from parents and scholarship sources. Or perhaps there isn’t. Either way, this is going to be an interesting story for economists (and parents) to watch, even if you don’t have a high school senior.

(Personal note: Hang in there college admissions people. We’re all pulling for you. You’re the greatest. Really.)

[If you don’t recognize the image that accompanies this post, it’s a poster from this really awful film.]