Monday, November 7, 2011

Why top MBA programs do not disclose grades

I have always been puzzled by the policy of many top MBA programs not to disclose the grades of their students. Even more puzzling is that they by and large manage to enforce this policy even from their top students, who should obviously want to signal that they are at the top of their class.

Daniel Gottlieb and Kent Smetters wondered about this as well. Such policies are voted by the students (who in the US own the grades) on the argument that it allows them to take more difficult classes without adverse consequences. Yet the evidence is that they learn less when such a policy is in place, which explains the general opposition to it from faculty. So, one can conclude that students are lazy (nothing new here), but is such a policy limited to top MBA programs? Why not in lesser programs, or other professional schools?

Gottlieb and Smetters point out that students have two signals for potential employers: their grades and the selectivity of the program. They are also risk averse, and at the start of their studies do not know how well they will do. In top schools, the selectivity signal is very strong and the students rely on it, while the "average" grade is superior in expected terms. In lesser schools, the selectivity signal is much weaker, and hence students try to distinguish themselves on the labor market in other ways, for example with grades.

To some extend, the same is happening on the Economics PhD market. When you look at the recommendation letters form the top schools, all candidates are the best in a generation in their field (I am exaggerating on a little). Thus the letter looses a lot of its value, and all that remains is the entrance selectivity of the PhD program. Lower ranked programs are much keener to differentiate their students and push the particularly good ones.

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