A Market in Rankings?

inTradelogo.gifComplaining about law school rankings is a cottage industry in the legal academy. (Or rather more than a cottage industry, I suppose.) Everyone — or nearly everyone — dislikes the current system, and while I am less skeptical than most — it doesn’t seem unreasonable to me that students planning on shelling out $70,000+ in tuition might want some comparative measure of quality — I agree that the current system leaves something to be desired. It seems to me that we could set up a market based solution.

A student recently suggested to me that inTrade ought to set up a prediction market in U.S. News Rankings. That way students could hedge against the risk that the value of their degree may drop if their school shifts in the rankings. It is not a bad idea, but the problem is that such a market — while allowing a bit of U.S. News risk arbitrage and hedging — would ultimately be about simply predicting the mysteries of the U.S. News system. Suppose, however, that we set up contracts for something other than U.S. News status. For example, one might purchase a contract predicting that West Dakota Law School’s graduates would have an average starting salary of $100,000 or more. This would provide information of the kind that most students care about. Alternatively, one might create a contract that pays out if East Carolina Law School’s faculty places 10 articles in top-ten law reviews this year or some other measure of scholarly accomplishment. Then we could compare the share prices for Harvard and Yale. Of course, we would still just be getting a market in prediction of a particular outcome, rather than actual quality, but it might not be a bad proxy and it might capture more of the dispersed knowledge about law school quality. Of course, in order for the system to work you would need a relatively thick market in the contracts offered and even if there were only three or four contracts per law school, the number of contracts available in the market would be huge. On the other hand, law profs and law students are nothing if not obsessed with status, and I suspect that there would be a sizable contingent eager to cash in on their obsession.

What do you say? What contracts do you think inTrade should offer?

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3 Responses

  1. The notion of hedging against a rankings drop seems absurd. Fine if it makes money, but calling it a hedge seems odd. Many (many) years ago I deferred law school for three years – it was ranked second or third when I accepted and fifth or sixth when I attended. Did my employment opportunities see a commensurate slide? My education opportunities? Of course not, which is why the rankings are absurd in the first place.

    If we (students) were truly hedging, I think these would be the prediction contracts:

    1. Cost of tuition

    2. Faculty/Student ratio (or some other quality of life indicator to be debated)

    3. Percentage of grads employed

    4. Average starting salary

    Of course, 3 and 4 may have little to do with the school and everything to do with the economy, but I suppose the reason is irrelevant if the market is irrelevant.

    As for 1 and 2 (and many other rankings categories), prediction markets don’t do as well where information is not freely available about what might happen, so I wouldn’t be betting on any such contracts. Of course, that’s the same problem with most rankings factors. I wonder whether public school predictors would be more accurate than private school based on information available.

  2. jon soroko says:

    Interesting notion. I’d propose

    (1) bar pass rates as one variable that might be relevant (to minimum competency levels)

    (2)number of graduates (or percent of graduates) employed as tenure-track law professors at accredited schools. This is, I suspect, a big indicator of law school status.

    At my law school (NYLS) we proposed changing the slogan to “The Best Law School in Tribeca.” I believe there was about a 40-year gap between the school hiring its own alumnae. (However, that aside, my professors – almost all Harvard- or Yale-trained – were outstanding, demanding, and also produced good scholarly work).

  3. TJ says:

    Good idea. But setting up the market here is almost as complicated as devising a good rankings system. If you have simply one single index, then you have the weighing problem–how do you determine whether students care about future income potential, versus faculty publishing, versus tuition, etc. One reason that US News has no real competition is because this weighing process is essentially arbitrary, so no one can claim to have a better weighing process. And if you copy US New’s weights, then it just becomes an index of US News rank.

    If you split up each variable, (e.g. a seperate contract for each school’s graduate income, faculty publishing, tuition, etc.) then the problem is that you are unlikely to get a market of sufficient size.