Grades

One of the worst parts of academic life is assigning grades to students. And that's what I've spent much of the last week doing.

No fun for me. No fun for the students.

I don't look it, but I am still young enough to know how it feels to be disappointed in a grade. I am still smarting from the B- that Val Hartouni gave me in Western Culture in 1987. (It's funny --- I could not tell you the name of one professor I had freshman year of college... except for Val Hartouni....)

So does grading have an economic purpose? Or is it just some hazing-like ritual of university life?

I can think of two potential purposes:

First, it's an incentive mechanism. Learning new things is actually hard, and it's useful if we have incentives to learn. Grades help serve that function.

Second, grading helps with information asymmetry in labor markets. And it's important to note that in labor markets it's often not so much that employers are trying to separate lemons from plums. Instead, it's often matching rather than sorting that needs to be done.

Let's explain: Pretty much all the MBA students at the DESB are plums. We have standards with regard to GMAT and undergrad GPA, so employers know that certain quality standards are met when they see "DESB MBA" on a resume.

So if everyone's a plum, what's the information asymmetry? Turns out that people have different strengths. Some are great at marketing. Some are better at finance. Others at negotiations.

Consider an employer who thinks "I know all these MBAs are smart, but I need to pluck the smart MBA who happens to be particularly good at marketing." How is that employer going to find that MBA?

One approach is to ask candidates during the interview: "Are you good at marketing?" To which each candidate responds: "Yes". So that's not too informative.

Another approach is to pick the one who took a bunch of marketing classes, and did well in them. So think of grading as a way to show off to employers what your particular strengths are.