By Bryan Caplan
There’s much disagreement in the comments, but I side firmly with everyone who said that the answer is indeterminate because the income and substitution effects work in opposite directions.
Your unexpectedly high grade is evidence that you earn more points per hour of effort than expected. Or in other words, the “wage” of studying is higher than you thought. And as every good labor economist will tell you, a higher wage has two effects on the quantity of labor supplied. There’s the obvious substitution effect – you earn more per hour, so you might as well work more. But there’s also the income effect: The higher the wage of studying, the richer you are – and the richer you are, the more leisure you buy. Net effect: ambiguous.
Complicating the problem is the fact that grades, unlike wages, have upper and lower bounds. You can’t score lower than an F or higher than an A+. If you did so well on the midterm that you’re now assured an A+, you can forget about the substitution effect.
Confession: In the real world, I think that a purely psychological model is at least as illuminating as basic micro. The model: Succeeding in X makes people like doing X more, and failing in X makes people like doing X less. The model’s prediction is that students who do well will work harder because their high grade makes them like studying the subject more.