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Signal Theory in Education

The eight Ivy League universities are among the oldest and the most prestigious institutions in the world. They are renowned for their academic excellence, highly selective admission process, and extensive academic and career opportunities for students.

One might think that there are more than 26,000 higher education institutions worldwide, and is it really the case that the few most renowned top-tier institutions provide exceptional education? Consequently, it seems like a reasonable question to ask whether it is really about the education these institutions provide, or more about the name and brand of the schools.The study conducted by Cornell, Rand and Brigham Young University in 1999 indicated that the Ivy League graduates are likely to earn as much as 39% more than graduates of less prestigious, second-tier schools. The studies of Princeton professor Alan Krueger conducted in the same year, however, indicate the opposite. His research suggests that any high-achiever, ambitious and hard-working student accepted to any Ivy League school would be as successful as if they had chosen to go to a second-tier institution.

The results of the first study are not surprising given the educational and networking benefits Ivy Leagues provide to their students. Krueger’s studies also seem reasonable, as it is up to an individual to make the most out of the opportunities given to them. Though the data is inconclusive, it is no coincidence that the world’s most influential individual are graduates of Ivy-League institutions. This notion is closely tied to and explained by Signal theory. If an employer in a company X has to choose between two candidates for a job position, he or she can’t differentiate between the two without a “signal”, which in this particular case is the applicant’s college degree. Given that both candidates are equally skillful and hard-working and have equal potential to succeed in the future, the employer will give preference to the candidate with a degree from a top-tier institution due to the belief that the most ambitious people generally strive to attend prestigious schools. Hence, though the college one attends is not necessarily a direct indicator of one’s intelligence, or ability to succeed, it is acts a strong signal and plays an important role in the Economics Job Market.




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