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Grades as signals of comparative advantage: How letter grades affect major choices

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  • Li, Hongyan
  • Xia, Xing

Abstract

Can noisy signals about comparative advantage have long-term effects on major choices and later-life outcomes? We study the effects of grades in introductory courses on students’ choice of major and labor market outcomes. Students in our setting observe their letter grades but not the underlying scores (0-100). Using a regression-discontinuity design, we find that students just above a letter-grade cutoff in an introductory course are 3.6% more likely to major in the same field as that course. We find larger effects on students with noisier priors about their comparative advantage and in fields with higher income-GPA gradients. These results are consistent with a model where students with incomplete information learn about their comparative advantage in different fields through introductory course grades.

Suggested Citation

  • Li, Hongyan & Xia, Xing, 2024. "Grades as signals of comparative advantage: How letter grades affect major choices," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
    • Handle: RePEc:eee:jeborg:v:227:y:2024:i:c:s0167268124003317
    DOI: 10.1016/j.jebo.2024.106717
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    More about this item

    Keywords

    College major; Human capital; Regression discontinuity; Learning about comparative advantage;
    All these keywords.

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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