Thursday, October 10, 2013
Michael Luca (Harvard Business School) & Jonathan Smith (College Board), Salience in Quality Disclosure: Evidence from the
U.S. News College Rankings, 22 J. Econ. & Mgmt. Strategy 58 (2013):
This paper investigates the impact of college rankings, and the visibility of those rankings, on
students’ application decisions. Using natural experiments from U.S. News and World Report
College Rankings, we present two main findings. First, we identify a causal impact of rankings on
application decisions. When explicit rankings of colleges are published in U.S. News, a one-rank
improvement leads to a 1-percentage-point increase in the number of applications to that college.
Second, we show that the response to the information represented in rankings depends on the
way in which that information is presented. Rankings have no effect on application decisions
when colleges are listed alphabetically, even when readers are provided data on college quality
and the methodology used to calculate rankings. This finding provides evidence that the salience
of information is a central determinant of a firm’s demand function, even for purchases as large
as college attendance.
(Hat Tip: Robert Morse.)