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To LSAT, Or Not to LSAT?

To LSAT, Or Not to LSAT? published on No Comments on To LSAT, Or Not to LSAT?

An article in today’s WSJ Online reports that a growing number of law schools in the US are planning to forego the LSAT (Law School Admission Test) as their required entrance examination and to begin accepting the GRE (Graduate Record Examinations) that most (general) graduate schools accept for entry into MS and PhD programs.

Proponents argue that it will broaden the applicant pool for law schools to consider individuals who may not want–for whatever reason–to take the LSAT and the GRE as they weigh grad school options. Opponents argue it will dilute the quality and preparation of students for the rigors of law school. Well that, an cut revenues from test fees if you’re the Law School Admission Council that administers the test. Can both (or all) sides be right?

Yes, they can.

Admission to graduate school (or any academic program really) suffers from a hidden information problem. Applicants have a better idea of their ability to succeed in grad school than do admissions committees. They also have an incentive to over-represent their abilities. (They also may actually over-estimate their abilities, if you follow the behavioral economics literature, but we don’t even need that for the story to be interesting.) Likewise, admissions committees have a better idea of how rigorous their program is and what it takes to succeed than do prospective students. And they don’t want to waste time on students who are not likely to be successful in their program.

In economics we refer to this as an ‘adverse selection’ problem. It results anytime there is an information asymmetry between potential trading partners in which one party has better information than the other, and may have an incentive to hide that information (because the truth would hurt their prospects in the trade).

There are (basically) two solutions for dealing with this adverse selection information problem. First, the information-disadvantaged party (in our case, the admissions committee) can use any number of screening devices to reduce the information asymmetry and sort out the good prospects from the bad prospects. That’s exactly the purpose the LSAT (or the GRE) serves. It reveals something about the applicant’s reasoning ability (especially the LSAT) or general knowledge base (more so the GRE). So the question is, are the attributes the LSAT and the GRE screen for sufficiently similar that relying on either one would be a good screen? Obviously, some law schools–and some very good ones–appear to believe that’s the case. Or they at least believe it’s likely enough to give it a shot. Since some schools have allowed the GRE as a special case in the past, they may even have evidence to support that conclusion.

The second way of dealing with adverse selection problems is for the party with the information advantage (in our case, the law school applicants) to signal their quality by undertaking some special effort that would only make sense if they were actually good prospects. In other words, choosing to send the signal is a self-selection mechanism that makes the applicant’s information claim more credible.

Here is where critics of the GRE standard are likely correct. If schools only accept the LSAT, applicants have to go out of their way to take this “grueling test” if they want to go to law school. Only students who really want to go to law school and who believe they have the ability are willing to put themselves through that (and pay the explicit costs as well). If schools will accept the LSAT or the GRE, on the other hand, some GRE-takers may apply to law school who wouldn’t have if they had to take the LSAT. Which means, as critics point out, there may be more applicants that aren’t really dedicated to the idea of law school and therefore may be less desirable students.

However, it might also be the case that some prospective students have broader interests, and the GRE has a greater utility for a wider set of possible graduate programs. In a world where college students have limited dollars and time to prep for a graduate admission test, the GRE is the more economical investment. While that might make the signal value of taking the LSAT that might higher, since you really have to want to go to law school to take it, it might also be reasonable to infer that the value of the LSAT signal to admissions committees is not high enough to risk missing out on good potential students who choose to economize on their admission test choice.

So ultimately, it’s not about whether one side (or which) is right about their concern. The real question is how much difference do their concerns actually make in the outcome of law school admissions, and is the difference worth the costs associated with either policy?

Of course, there is yet another possibility–and one the American Bar Association seems to be considering. That is, that neither screening device is valuable enough to require it for admission to law school. At least not enough to make requiring a test part of the accreditation standards for law schools. Apparently the ABA believes the information asymmetry may no longer be so great that the screen/signal adds all that much value after all.

If I were in the market of selling that screening device (or either of them) and the ancillary services that go with it (e.g., test prep courses), I’d be a bit concerned about the future of our business model.

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