College vs Grad School

sakky
Mon, 09 Jun 2008 13:17:46 +0000

I presume you mean the FINANCIAL payoff.



Yep, that’s what I mean. But see below.



I take it you give no consideration to quality of life, intellectual challenge and such in your “payoff” mental formula?



The problem with that is simple - many academic/research jobs don’t exactly have a high quality of life. Trust me, playing the political game in order to win tenure as an assistant prof ain’t exactly a lot of fun.



Unfortunately, you forgot opportunity cost in your quickie calculation. The correct math goes like this:

Year MBA PhD
1 -110 -60
2 -110 -60
3 120 -60
4 120 -60
5 120 -60
6 120 -60
NPV 168 -295



Huh? How’s that? Please do your calculations more carefully next time.

Firstly, and far more importantly, it seems that you have made a whopping assumption that somebody really can get into a top MBA program right out of college. But as I said, at the top B-schools, probably no more than 1-2% of the students are right out of undergrad. The median age of an entering student at a top B-school is around 27-28. But I will be charitable and say that somebody required only 2 years of work experience (at the charitable $60k salary, which only a minority of undergrads will get) to get into a top B-school. Two years of work experience is after all, what most B-schools recommend as a minimum.

Secondly, it seems that you are presuming that the PhD student took 6 years to finish. Why? Some people do indeed take 6 years or longer. But others take substantially shorter. Heck, I know people who have done it in 2 years. In this instance, the Harvard anthro girl took 4 years, so that is what I will use.

Thirdly, you have double-counted with respect to the $120k salaries, because that’s no longer “opportunity cost”. In other words, if you want to say that an MBA student makes $120k in a particular year then the PhD student makes his stipend (that is, $23k), not “-60” or “-37”.

So let’s put in these new, far more reasonable figures:

Year MBA Phd
1 60 23
2 60 23
3 -110 23
4 -110 23
5 120 120

NPV 118 169

Hence, the Phd girl clearly beats the MBA student by a wide margin in terms of NPV.

Now, let’s deal with the assumptions and see if there are externally valid. I enumerate them as follows:

***The PhD student is able to finish in 4 years. ** No doubt, some people take longer (or don’t even finish at all), and the longer you take, the less financially optimal a Phd becomes. On the other hand, as I pointed out, some people take shorter. This can be particularly true if you realize relatively quickly in the process that you aren’t really interested in becoming an academic anyway (in other words, that you’d rather be a consultant) and hence aren’t really interested in spending time in building an impressive publication list, and so you can just do the bare minimum required to graduate.

*** The future MBA student really was able to find a $60k paying job right out of undergrad. ** However, the truth is, most undergrads don’t get paid anywhere near that kind of money to start. This is particularly true for majors like anthro that just don’t pay highly. For example, the average starting salary for anthro majors from Berkeley in 2007 was less than $35k.

[Career Center - What Can I Do With a Major In…?](http://career.berkeley.edu/Major/Anthro.stm)

Now, to be fair, if you really can nab a $60k a year job right out of college, then maybe you should take that. But what if you, like most new college graduates, can’t do that? In that case, a PhD stipend won’t pay you that much worse than what you would have earned in a job (which also wouldn’t have paid you much.)

***The MBA student was really able to get into a top B-school with just 2 years of work experience. ** I find this to be the most dubious assumption of all, for, like I said, the median age of MBA students is around 27-28. Obviously the younger you are when you go to B-school, the better off you are. And like I said, sure, if you really are one of the very few who can get into a top B-school right out of undergrad, then you should probably do that. But clearly the vast majority of people can’t do that and require several years of work experience before they can get in. The more years of work you need just to get in, the lower the NPV.

So let’s take it back to the example I used before. That Harvard anthro girl became a consultant at age 26, right after she finished her PhD. That’s a year before most MBA students even start their MBA program. I think there is no question that she won the NPV battle.