Grading effects on student effort: the role of targets, beliefs, and explanatory styles

I study grading effects on the students’ academic achievement in a two-period behavioral economics model. The student’s utility function is assumed to decline with effort, and have a positive jump when the student achieves their grade target. The optimal choice of study effort in the first period depends on the student’s target grade, on its importance to the student, and on their prior beliefs about returns to their ability and effort. Having obtained grades from the first study period, the student can attribute an unexpected success or failure either to unstable (luck, health) or stable factors; in the latter case either internally (ability), or externally (grading strictness). This means that the student has to update their prior beliefs about their ability and/or return to effort, and choose the optimal second-period effort accordingly. The model predicts several types of grading effects on study behavior. Notably, no matter whether the student attributes academic success or failure to stable or unstable factors, higher initial grades, ceteris paribus, lead to lower (or at least not higher) future effort; the only exception to this negative grading effect is a dramatic discontinuous jump from zero to maximum effort occurring when the student switches from the “giving up” regime (originating from the extremely low initial grades) to the grade-seeking one. I derive practical implications from these findings.