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 .20 .30 .30 .20

GPA 2.5 3.0 3.5 4.0

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 3.5GPA 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 2.5 3.0

.2/.5

=.4

Original share Students remaining

.3/.5

=.6

.4*2.5 + .6*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 .20 .30 .30 .20

GPA 2.5 3.0 3.5 4.0

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

http://www.jstor.org/view/00222186/ap020088/02a00130/0

Voluntary Disclosure and Hygiene Scores for Restaurants in Los Angeles

The Effect of Information on Product Quality

By Phil Leslie and Ginger Jin

http://www.mitpressjournals.org/doi/pdfplus/10.1162/003355303321675428?cookieSet=1

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 colleges2 Liberal arts college in the NE 1800 students enrolledMean 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 implemented2 years for College X1 year for College Y (1st 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 2Voluntary Disclosure by SAT I Score and Demographics

Share who chose not to reveal their SAT1 Score

RaceGender

SAT I Score All White AfrcnAmr Hispnc Asian Unkn Men Women

College X

0-1180 0.36 0.37 0.24 0.33 0.31 0.44 0.28 0.39

1190-1260 0.18 0.19 0.08 0.15 0.28 0.16 0.13 0.21

1270-1340 0.06 0.06 0.00 0.04 0.03 0.08 0.05 0.07

1350-1600 0.01 0.01 0.00 0.00 0.01 0.01 0.00 0.02

All 0.15

N 6955

College Y

0-1180 0.23 0.21 0.32 0.31 0.23 N/A 0.20 0.25

1190-1260 0.32 0.32 0.41 0.43 0.24 N/A 0.29 0.34

1270-1340 0.35 0.36 0.28 0.25 0.32 N/A 0.33 0.37

1350-1600 0.07 0.07 N/A 0.08 0.02 N/A 0.07 0.07

All 0.24 N/A

N 3504

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…

0.0

5.1

.15

-400 -200 0 200 400 600 -400 -200 0 200 400 600

consider SAT I do not consider SATI

Fra

ctio

n

Predicted SATI Score - Maximum SATI ScoreGraphs by don't use SATI

0.1

.2

-400 -200 0 200 400 600 -400 -200 0 200 400 600

consider SAT I do not consider SAT I

Fra

ctio

nPredicted SATI Score - Maximum SATI Score

Graphs by SAT Option

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 = α0+ α1(SAT1 score/100) + α2(HS GPA) + α3(Female) + α4 (attended private HS) …

where,Y=1 if student does not submit and =0 if does submit

-0.1284 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 X College Y

I III

SAT1 Score/100 (16 max) -0.1284* -0.0807*

(0.0044) (0.0073)

SAT2 Score(s) available (1=yes) -0.2989* -0.5203*

(0.0536) (0.0920)

Average SAT2/100*SAT2 Score(s) available

0.0512* 0.1063*

(0.0086) (0.0148)

Independent Variables

* (stars) indicate statistical significance!

Economic significance: 100 point increase in SATLowers probability of NOT submitting SAT by 0.12Percentage points (more likely to submit), ALL ELSE EQUAL

Coefficient

Standard Error

Dependent Variable (Chose Not to have SAT I Considered) College X College Y

High School GPA A+ 0.0503*** 0.0097

(0.0261) (0.0452)

High School GPA A 0.0578* 0.0301

(0.0186) (0.0350)

High School GPA A- 0.0334** 0.0636**

(0.0162) (0.0317)

High School GPA B+ -0.0085 0.0686**

(0.0158) (0.0309)

High School GPA B- -0.0226 -0.1008***

(0.0297) (0.0564)

High School GPA C -0.0963*** -0.1662***

(0.0548) (0.0940)

Female 0.0332* 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 X College Y

African American -0.1130* 0.0362

(0.0249) (0.0409)

Hispanic -0.0676* -0.0001

(0.0214) (0.0381)

Attended Private High School 0.0214** 0.0418*

(0.0090) (0.0161)

From Midwest 0.0653* -0.0096

(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 ReportCriteria Weight Subcriteria Weight

Student Selectivity 15% SAT/Act scoresAcceptance RateYieldHigh school class standing top

10%

40 %15%10%35%

Academic reputation (survey of other colleges)

25%

Faculty resources 20%

Graduation and retention rate 20%

Financial resources (expenditure per student)

10%

Alumni giving (rate) 5%

Graduation rate performance 5%