The Winning Move Is Not To Play: Game theory and the Willetts funding model.

The opinions expressed within this blog post are my own, and not those of my employer, or of projects or programmes I am responsible for. This post is available under a Creative Commons Zero (public domain) license.

The very little I know about the application of game theory on educational policy I learnt from my inspirational former colleague, Professor David Turner at the University of Glamorgan. The bits that I have got wrong are, however, entirely my own fault.

During a speech at the Universities UK Spring Conference, David Willetts (UK Secretary of State for Universities) reiterated his warnings about the high potential cost to the taxpayer of universities electing to charge fees reflecting the full range of that which is permitted to them. It is now an open secret that the new funding model for universities is certain to cost the taxpayer more within this parliament, and is very likely never to cost any less than the current model. Bearing this in mind, Willetts has warned senior university staff that money may be taken from other university income streams (for instance the research budget) in order to be able to fund the additional loans that would be required to meet these fees.

Tough talk. But it unfortunately betrays an inability to understand his own policies around competition and an “open market”.

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The table above outlines my analysis of the situation. The only chance that institutions have of even maintaining their existing funding is to charge above £7,500 and hope that enough of their competitors choose not to in order to avoid triggering the threatened cuts in research funding. Were the expected lower levels a revenue neutral (including inflation and additional costs incurred for the move to the new system) situation, it may be rational to broker a sector-wide compact (or cartel, if you prefer) to ensure that no-one steps over whatever line the government has drawn in the sand.

But the minimum (and even the implied “normal” maximum) mean that institutions would lose money as against the current system. When you combine this with the decade of incentives encouraging the sector to compete, we are very likely to see a rush to the top. Based on my analysis, above, this is the only rational choice for institutional managers looking to maintain or increase income. 

This is a “non-zero-sum” game, as there is no way to maintain a position. Institutions will either win or lose – and a lower price than the rest of the sector means that they will lose heavily. The same goes for private institutions, incidentally. What motive have they got not to seek the maximum possible income?

I’ve said it before (many times), I’ll say it again. This model of university funding is unworkable. 

You could make your own game theory analysis of the two models of HE. On one side you have the new model, where students, institutions and the tax-payer all lose out. On the other the current model, where they don’t.

2 thoughts on “The Winning Move Is Not To Play: Game theory and the Willetts funding model.

  1. the problem with the prisoner’s dilemma is perhaps it’s too small a window on a decision which won’t show deliverables until at least three years into the future.The major issue is that most Universities are as closed shop and inflexible as the coal industry was. I said to a friend two years ago that most Universities are blindly walking into their own Battle of Orgreave. They laughed it off. Both of those academics don’t have jobs now. There is scope for savings at Universities – to believe otherwise is folly – so ignoring the potential for price competition as a differential would be inaccurate. I also think product competition using some dynamic thinking could go a long way.This is coupled with the fact that most VCs are careerist, and what’s to gain in their risk taking. So I don’t think it’s a Willett’s Dilemma, it’s a cowardice dilemma. If we all do 9000 pounds then it’s status quo, and we continue. New labour’s real gift to society was creating a cabal of leaders who aren’t. Decisions made via polls and consensus aren’t really made.I’d love to be a VC right now. And I’d stick at 3,000 pounds. Impossible? Course not. It’s not like i’ve worked on something that for 30,000 which completely owns a 2 million pound a year alternative. These aren’t sacred pillars, they are just the gravel for tomorrow’s roads. Push. Push on. Push against. Reach.And the best move, is always, and will always be, to control the game. If the house always wins, then be the house.

  2. The house always wins. Agreed.I really hope we do see Vice Chancellors do something daring. That’s kind of why I used the “Prisoner’s Dilemma” type boxes (it’s not a classical Prisoner’s Dilemma of course, though that’s how Willetts would like us to see it.), it makes it clear that if you play by the BIS rules, you lose (Hence “the winning move is not to play” – aside from the fact everyone loves “War Games”).Great comment, thank you

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