Tuesday, March 14, 2006

Woody Allen and the adverse selection

One short line to illustrate the concept of adverse selection:

"I'd never join a club that would allow a person like me to become a member..." (Woody Allen, in 'Annie Hall,' 1977).

Well, to make it a personal matter, there was a school that I decided not to apply to. That was because they sent me a letter, asking me to consider applying there. As a rational economist, I did not. And somehow, now I regret that decision...


  1. Could also taken as a signaling game.

    By sending a letter, the university send signal that your probability to be accepted there is not too small.

    But you want to max utility and accepted at high quality universities where your credential is just on the boundaries of acceptance.

    If you can only applied to one university, then it is optimal not to applied to those that would accept you with open arm since it signal not-so-high-quality/selectivity (unless you just publish in AER/QJE/Econometrica)

    But you do can applied to more than one uni and decide later if accepted more than one. So the game theory analysis break down and you are just a too-proud man that throw away an opportunity :-D

  2. When you have to search for a school, you are probably overappreciated. When schools search for you, you might be underappreciated.

    This is the search theory, due to George Stigler.