A- or B+: The Signaling Effect of the Letter Grade

There are three main factors that influence student major choice: ability, labor market returns, and preferences. In their time at college, students update themselves on all three in order to determine their final major choice. Ability is updating using transcript letter grades. However, when testing the effect of grade point average and SAT scores, both of which are measure ability, it is difficult to parse out the students’ actual ability versus the signal the measure gives the students about their ability. This paper will attempt to mitigate that issue by using a regression discontinuity design to determine the effect of student letter grades on major choice. To do this, the paper will focus on the effect of the letter grade in Economics 101, the introductory economics course at Wellesley College, on a student’s probability of majoring in economics. The paper will examine students who are close to letter grade cutoffs, as determined by their final numerical weighted average of assignments in the course, but ultimately fall on one side or the other. Then, students on either side have the same ability level but ultimately receive different letter grades. What I found is that students above the cutoff are 50% more likely to major in economics relative to those below the cutoff. When I looked specifically at cutoffs that change the letter, such as the A-/B+ cutoff, I found that students above the cutoff are 80% more likely to major in economics. However, being on either side of the cutoff has no influence on whether students study other kinds of subjects, either if they do not choose economics or they double major with economics. The letter grade in Econ 101 is a strong signal to students about their absolute ability in the economics major