A Booth Education, for Free? With Professor Cochrane’s Online Class, It’s Already Started.

Son Nguyen ‘14

A Booth education, for free? Well, some of it. In Fall 2013, John Cochrane, the AQR Capital Management Distinguished Service Professor of Finance, teamed up with Coursera, a Massive Open Online Classes (MOOC) platform, to offer an online version of the course “Asset Pricing.” Courses offered through MOOCs typically tend to be simple introductory classes, however asset pricing is anything but. The typical student who enrolls into Cochrane’s course at Booth is a second-year student that is pursing his or her PhD. However, this did not dissuade people from signing up and taking the course.

The results were actually remarkable. In fall of 2013, the first time the course was offered online, the class attracted 37,000 registrants; 4,000 of which followed the videos and about 250 completed all the homeworks and final exam. This is three times the number Cochrane had expected.

Alternatives to the traditional classroom education have a rich history and as technology has evolved, so has education. Booth students access course materials and in certain classes recordings of lectures on the web, they interact with professors and each other by e-mail, and generally conduct much of our learning online. MOOCs, standalone online courses open to anyone, seem like the natural next step. Traction even among elite institutions is undeniable: you can take virtually any MIT undergraduate and graduate courses online via MIT OpenCourseWare, as well as some MBA classes from Stanford (“Technology Entrepreneurship: Part 1”) and Wharton (“Introduction to Corporate Finance).

Booth has yet to embrace MOOCs as its peers have, but Cochrane is a strong proponent of the online courses. Booth and the University, like other top institutions, have committed to building a global brand; the recently opened Center in Delhi and the ubiquitous stacks of the excellent Capital Ideas magazines around Harper are two manifestations of this commitment. Cochrane sees offering distinctive well-branded Chicago online classes (read: not Corporate Finance 101) as an extension of this effort. Cochrane’s vision is to make Booth’s education available globally- “if only 100,000 people in China could experience the wonderful Booth education."

Such audience may seem difficult to reach, but Cochrane believes that if Booth were to put heavily sought-after classes such as Steve Kaplan’s “Entrepreneurial Finance and Private Equity” on Coursera, it would generate a huge following and, more importantly, intellectual and brand impact. Furthermore, these classes provide a powerful medium for alumni around the world to connect with the school, as well as with each other, on an intellectual level. Cochrane is not alone in his view; Gus Sauter MBA’80, retired Chief Investment Officer of Vanguard, told ChiBus that he plans to fully take advantage of MOOCs in the future.

MOOCs also serve as modern textbooks. Booth PhD students taking Cochrane’s on-campus Asset Pricing class were required to also take the online version. The new approach worked wonders; it turned out asking students to view the lectures, and do the quizzes and problem sets before attending class – instead of merely requiring them to do a set of readings – produced well-prepared students and a brilliant level of discussion, both of which were “far higher than I have ever experienced”, noted Cochrane. Feedback from the students was strongly positive, with some preferring the video lectures to the real thing due to the ability to stop, rewind, and study hard parts in depth without affecting other students’ experience.

So what’s the catch? For one, the “flipped classroom” requires a different and greater level of effort from the providers. Booth professors are experts at commanding 3-hour classes; yet 3-hour MOOCs would resemble what the Financial Times labeled, in its review of Wharton’s effort, “the Death March of Moocs”. Instead, Cochrane, with the assistance of the University’s IT group, recorded 5-8 minutes segments ahead of time. He also rewrote his quizzes and exams from scratch to fit the peculiarities of the new medium. All of this - specialist support staff, video production, and most of all faculty’s time not only to create the materials but also to facilitate ongoing interaction – leads to MOOCs having higher fixed costs than traditional classes.

As the cost of porting a class online is high, so are the implicit costs of changing things. While Dean Kumar did encourage Professor Cochrane to start his MOOC project, the resistance for sticking with the status quo is strong as well. Dean Stacey Kole noted, “neither students nor faculty are clamoring for greater use of technology in the classroom.”

Moreover, the consensus is still out on the best use of MOOCs at a top research institution like Chicago. For the moment, the online education landscape is dominated by introductory or language-focused classes, where the teacher adds value more as a coach – an expert in pedagogy – than as an expert in the subject matter. MOOCs at Stanford and Wharton, as well as the not-so-massively-open HBX at Harvard (which targets undergraduates and graduate students in non-business fields but requires tuition fees and an application) are similarly watered-down. For Booth to offer advanced courses, as Cochrane envisions, it would require a bold deviation from common practice.

Since we are at Chicago, any discourse on MOOCs should include at least a perfunctory discussion of the underlying economics. High fixed cost and low marginal cost mean that, while each additional unit sold is almost pure profit, in the long run competition would push price towards marginal costs. Unable to undercut competition, MOOCs will compete on quality. Such markets often evolve into winner-take-all competitions where “superstars” profit handsomely. For example, in the after-school tutoring market in Korea, the best teachers reach hundreds of thousands of students online and command multi-million-dollar compensation. The textbook market also fits this description – textbooks are expensive to create yet can be reproduced cheaply. Not surprisingly, only four introductory economic texts account for half of the American market.

MOOCs might very well follow the textbook business model: for use of its quality materials Coursera can charge universities, which in turn charge students for degrees. Or it can follow the “garage band model”: putting music – the classes – online for free, which raises concert revenue – economic benefits of a stronger global brand and an engaged alumni network. Or both. But changes are a-comin’, and John Cochrane wants Booth to be on the forefront.