Don’t Put All of Your Alums in One Basket: College Admissions Decisions as a Portfolio Choice Problem

Abstract

We consider philanthropy by college alums from an innovative and provocative perspective: what if prospective college students were considered members of asset classes with different risk-return combinations? Using forty years of merged admissions-philanthropy records on students at a highly selective liberal arts college, we estimate the simple financial model that this allegory implies. We find benefits to diversification, identify the slope of the market risk-return line, and point out the most (and least) attractive potential students in terms of their projected future donations.