Mist, fog or clear? Diminishing sensitivity to status differences signaled by rankings and choice

Rankings constitute a ubiquituous form of status hierarchy that structures the choices of decision makers in many settings. In this study we take a cognitive perspective on status to explain the effect of rankings on the choices made by decision makers in the context of applications to MBA programs. Building on models of diminishing sensitivity, we show that the perception of the value of a program decreases non-linearly as a function of rank with perceived status differences being salient near the top of the ranking and insignificant near the bottom. Furthermore, we argue that due to diminishing sensitivity intermediate rank signals are difficult to interpret. Such difficulty prompts decision makers to use reputation signals that provide cues about the evaluation of their choice third parties as a lens to interpret status signals. We test our hypotheses on a sample of 411,530 candidates to MBA programs in the United States. Our findings contribute to building a theory of how decision makers process status signals and how status signals affect decision making.