Voluntary Disclosure Not Covered in Textbook

You’re on a job interview and the interviewer knows what the distribution of GPAs are for MBA students at MSU: Percent GPA Expected/Average grade for everyone:.2*2.5+.3*3.0+.3*3.5+.2*4.0 = 3.25 Geoff Humphrys at the Lear Center advises anyone who has a 3.5 GPA or higher to volunteer their GPA. Is this a stable outcome?

What does the potential employer believe about the people who stay quiet? They know their GPA is below a 3.5, but how far below? Guess the average grade of everyone who didn’t get at least a 3.5. What is that? Percent GPA /.5 =.4 Original share Students remaining.3/.5 =.6.4* *3.0 = 2.8 People with 3.0s will reveal themselves because they don’t want employer to assume they have a 2.8 Percent GPA

Voluntary disclosure Full disclosure principle - if some individuals stand to benefits by revealing a favorable trait, others will be forced to disclose their less favorable values. If disclosure is costless, only the lowest types will not reveal their quality

Voluntary Disclosure and Signaling Voluntary Disclosure differs from Signaling because we are assuming that the cost of lying (i.e., saying you have a GPA of 4.0 when you have a GPA of 3.5) is so large than no one does it. Therefore, the decision is to either reveal your private information truthfully or don’t reveal.

Voluntary Disclosure If it is true that only the lowest types don’t reveal and that consumers/employers (the uninformed party) can infer they are the lowest type, then government should not have to intervene in the market – for example, they should not require firms producing salad dressings to report the fat content and they should not require restaurants to report their hygiene score.

Voluntary Disclosure and the Fat content in Salad Dressing The Impact of Mandatory Disclosure Laws On Product Choice Alan Mathios

Voluntary Disclosure and Hygiene Scores for Restaurants in Los Angeles The Effect of Information on Product Quality By Phil Leslie and Ginger Jin

Voluntary disclosure and SAT scores Institutional Details Voluntary disclosure question Data Results

Institutional Details Increasing # of schools are adopting policies where submitting your SAT scores are optional  i.e., students can submit high school G.P.A., extracurricular activities etc, and intentionally exclude standardized test score on their application  School will judge students based on submitted material

Voluntary disclosure question Theory: If it is fairly costless to reveal your scores, only the students with the very lowest scores should not reveal. Others want to avoid being considered the “average” of those who don’t reveal. Is it only the students with very low SAT scores that don’t reveal?

Data About the colleges  2 Liberal arts college in the NE  1800 students enrolled  Mean SAT score > 1200 (out of 1600) 1020 is the mean SAT score of those who take it

Data - specifics From recent years and when the policy was first implemented  2 years for College X  1 year for College Y (1 st year of policy)

Data - specifics Data contain  Whether student wanted SATs considered  SAT score if submitted  College Board provided SATs for those who didn’t submit  Race, gender, zip code, legacy status, early admissions, HS GPA, financial aid intent, type of high school  Survey results from SAT (self reported income, GPA etc)  Zip code information (race, income, etc.) from Census  College’s rating (total scale of 7 (X) 9 (Y))

Table 2 Voluntary Disclosure by SAT I Score and Demographics Share who chose not to reveal their SAT1 Score Race Gender SAT I ScoreAllWhiteAfrcnAmrHispncAsianUnknMenWomen College X All0.15 N6955 College Y N/A N/A N/A N/A N/A0.07 All0.24N/A N3504 Does the voluntary disclosure principle hold? What else is related to NOT submitting your SAT score?

Predict SAT score based on other observables (like GPA, activities, etc). Compare to actual… a.If predicted (based on other characteristics like GPA, activities, gender etc) is greater than actual (where actual is maximum if take SAT more than once)… b. If predicted is < actual… More likely NOT to report! More likely to report! Line → predicted = actual Right of line → predicted>actual

Regression Specification OLS ordinary least squares Y = α 0 + α 1 (SAT1 score/100) + α 2 (HS GPA) + α 3 (Female) + α 4 (attended private HS) … where, Y=1 if student does not submit and =0 if does submit A 100 point increase in SAT lowers probability of NOT submitting SAT1 by 0.12 percentage points (more likely to submit), ALL ELSE EQUAL

Linear Probability: Dependent Variable =1 if Applicant Chooses Not to Submit SAT I and=0 if Choose to Submit College XCollege Y IIII SAT1 Score/100 (16 max) * * (0.0044)(0.0073) SAT2 Score(s) available (1=yes) * * (0.0536)(0.0920) Average SAT2/100*SAT2 Score(s) available *0.1063* (0.0086)(0.0148) Independent Variables * (stars) indicate statistical significance! Economic significance: 100 point increase in SAT Lowers probability of NOT submitting SAT by 0.12 Percentage points (more likely to submit), ALL ELSE EQUAL Coefficient Standard Error

Dependent Variable (Chose Not to have SAT I Considered) College XCollege Y High School GPA A *** (0.0261)(0.0452) High School GPA A0.0578* (0.0186)(0.0350) High School GPA A **0.0636** (0.0162)(0.0317) High School GPA B ** (0.0158)(0.0309) High School GPA B *** (0.0297)(0.0564) High School GPA C *** *** (0.0548)(0.0940) Female0.0332*0.0334** (0.0089)(0.0145) Relative to a HS GPA of B! All else equal (same SAT score, for example) More likely to NOT have SAT I considered if higher HS GPA All else equal more likely to NOT have SAT I considered if a female student

Dependent Variable (Chose Not to have SAT I Considered) All else equal More likely to have SAT I considered if minority College XCollege Y African American * (0.0249)(0.0409) Hispanic * (0.0214)(0.0381) Attended Private High School0.0214**0.0418* (0.0090)(0.0161) From Midwest0.0653* (0.0183)(0.0347) All else equal More likely to NOT have SAT I considered if attended private HS

Conclusion Are the costs of revealing low? Does the full disclosure seem to apply? Why? Who does withhold their SATs? Students with other measures (HS GPA, SATIIs of high abilities White students Women Private High School attendees

Why would Colleges go to Optional SAT Policy? Attract a different type of student (those that don’t test well but do well in college) Maybe more diverse? Improve ratings Average SAT score included in U.S. News and World Report If don’t have SAT scores for lowest score students, reported average increases.

U.S. News and World Report CriteriaWeightSubcriteriaWeight Student Selectivity15%SAT/Act scores Acceptance Rate Yield High school class standing top 10% 40 % 15% 10% 35% Academic reputation (survey of other colleges) 25% Faculty resources20% Graduation and retention rate20% Financial resources (expenditure per student) 10% Alumni giving (rate)5% Graduation rate performance5%