University is all about Ranking People

The biggest misconception is that the main purpose of the university system is to teach new skills and knowledge to students. Instead the university system’s main function is to filter and rank students and provide a signalling mechanism for the rest of society. In this post I’ll take a look at what university provides to society, from four perspectives.


The first way to view higher education is as a consumption good. Essentially, students pay for either a 4 year or 2 year holiday or party. Society probably needs some place after high school to allow young adults to mature further before entering the workforce. Certain programs, like the MBA, cater for students who want to take a break for 2 years away from their working lives. 

Social Network

The next aspect is the University as a social network. More specifically, universities offer the opportunity to search and tap into many different social networks (there isn’t just one social network). A big selling point to students is the ability to find and participate in student societies with like-minded peers and much of the student life at university centres around student run societies that explore different interests and niches – sports, investment, dance, music etc. However the quality of these social networks is affected by who is/isn’t let into the university in the first place. We’ll cover this below in the Signalling function.


The next perspective is that higher education is for Learning. Students give up years of earnings in exchange for more skills and the associated future earning power that comes with that knowledge.

A student goes to university to study an engineering degree to learn mathematics, engineering analysis, modelling. With these new skills, the student secures a job at a civil engineering contractor. By gaining skills and knowledge, a student increases their earning power. This is how society mostly thinks about the higher education system.


Signalling is, in my view, the most important and probably the least considered aspect of the higher education system. It’s in large part a way to signal to the rest of the society, your ‘worth’ as a worker. Signalling works in many ways at university. Let’s look at the lifecycle of someone entering university: from receiving an offer, to competing with other students in coursework to finally obtaining a degree.

Signalling begins when a student gets accepted to a university. Getting into a prestigious institution (Stanford, Harvard etc) means that the student has passed the filter of the application process. The most enterprising students have been hacking this process in recent years by dropping out after being accepted. This allows them to do three things:

  • Prove that they were good enough to accepted into a highly prized university
  • Not have to pay the tuition costs for actually attending the university
  • Hint that the opportunity cost of their time is so high that it is better for them to drop out than attend a prestigious university.

The second part of signalling is the tournament aspect, in which students are ranked against each other in performance. Each semester, a new mini tournament begins in which students race to demonstrate their skill level in a fixed amount of time.

At the end of your degree, the university gives you a piece of paper which says something like “this is to certify that XYZ has been admitted by the Council to the Degree of Engineering…”.

The value of this degree is largely derived from the brand of the university that is conferring this degree on you. A computer science degree from UC Berkeley is more highly valued than one from University of Missouri and a degree from Carnegie Mellon is even more highly valued than one from UC Berkeley.

The value of this accreditation is also implicitly based upon how many people hold this degree. Peter Thiel has the following thought experiment:

“If you wanted a combined mob of faculty, students and alumni to come after you as a university administrator, you would announce tomorrow that your university is great at educating students and that you are going to triple enrolments”.

Enlarging your enrolment intake would dilute the value of your accreditation. This hints that a university’s first and most important role is to filter and select students rather than to educate them whilst attending their institution.

Why Signalling is the most important

Let’s state specifically why I think signalling is the most important function of university. We’ll do this by understanding why the other functions that I’ve outlined- Consumption, Learning and Social Networks are NOT the most important aspect of the university system.

We know that Consumption isn’t the most important function – else universities would be way better at catering for students – something like a high class service industry.

Learning (investment in skills/knowledge) is not the most important aspect, else universities would be open to massively increasing their enrolment.

The Social Network aspect is affected by who is and isn’t let into the university in the first place – which is part of the signalling mechanism.

The true nature of the university system is not just a signalling mechanism. It is a superposition of a signalling mechanism with aspects of consumption, learning and a social network. If we are ever hopeful of emerging from the current model of higher education we must have a clear view of what society uses the university system for.