A Framework for Reconsidering the Lake Wobegon Effect

The Lake Wobegon Effect (LWE) describes the potential measurement-error bias introduced into survey-based analyses of education issues. Although this effect potentially applies to any student-report variable, the systematic overreporting of academic achievements such as grade point average is often of preeminent concern. This concern can be easily circumvented if official records data are available; however, many researchers can only access student-reported data. In this article, the authors examine whether using student-survey data in place of official records data meaningfully biases regression estimates. They motivate their contribution by noting a useful statistical feature of overreporting on bounded variables such as grade point average. Specifically, the misreports will be negatively correlated with the true grade point average, yielding a form of nonclassical measurement error that actually counteracts the bias. The authors connect this observation to reliability ratios used in labor economics, which are simple ways to adjust for attenuation bias, when needed. In two applications, we find that it is unnecessary to correct for the LWE bias because it is so small.