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I thought the only purpose of having a written test is to protect the instructor (and possibly the agency) against any future liability claim. It provides an auditable record that the student completed the course and knew the material if anything happens subsequently. If the Instructor feels comfortable doing an oral / in course assessment I don't see why this should be any less satisfactory in terms of actual testing.
Most of the scuba written exams I've seen over the years are little more than a test of your ability to memorize certain segments out of the corresponding student handbook. Many of the questions are worded in such a manner that what they're really testing is your ability to interpret the question. Some have little or nothing to do with scuba diving, and are more aimed at promoting the agency or reinforcing the notion that you should buy another class. Some are just confusing, or leave you wondering why this is on an exam. For the most part ... with the exception of the NAUI Master Diver exam ... I've found written exams to be a weak and ineffective evaluation of the student's retention of class materials.
Sometimes I get the impression that the folks who write these exams randomly pick passages from the student handbook and frame a question around the words in a paragraph ... without considering the context that gives it meaning. That doesn't really test a student's knowledge ... it merely tests their ability to remember certain things they read, regardless of whether or not they understand what it means ...
... Bob (Grateful Diver)