Thursday, July 12, 2012

The LIBOR scandal

Assume a scenario as follows:

You're a teaching assistant, your only job is to grade assignments and tests. A student comes up to you one day, after a mid-term, asking about the marks you gave in his/her last test. You explain what you did.

The student is generally accepting, except that he/she says at the end "Thanks for your time. I'm worried that I won't get an A, which means I lose my fellowship and will be forced to leave the program, so that's why I am worried." You check this later on, and find it is true.

Now the next test comes up, and the student makes exactly the same mistake as before. It is however very slight but nevertheless implies a B grade. If you give the student just a marginal, tiny amount of more marks, he/she will keep the fellowship and be able to finish their course.

What would you do?

There are certainly costs associated with the minor inflation - one, where do you stop when you start. Two, it violates a personal code of grading. Three, the student will maybe not learn from the mistake.

If you don't carry out the inflation, the student is forced to drop the program, or perhaps suffer an extended delay of graduation. There is substantial harm imposed on the student.

How do you compare these costs? Either the student never learns, or learns the really hard way; so hard possibly that the lesson is no longer relevant. (The student gives up hope and goes home to work on a farm). 


2 comments:

colours said...

give the student the B he deserves. because if not for fairness the relativeness of A and B itself loses its meaning.

I was reading something else the other day that came close to this scandal.. a paper about "yes men" how agents employed to gauge values of some parameters end up giving estimates that are close to the principal's own guess, especially when the real value is never verifiable. sounds like LIBOR which 'really' is a rate that does not exist. it only estimates the real that would have, that too with self-proclaimed costs of borrowing.

k said...

But how relative are they when a tiny fraction can pull you up or down so easily?