Can Better Peers Signal Less Success? The Disruptive Effect of Perceived Rank on Career Investment

Is being among the best always the best? We estimate the effect of class ranking in college and show that being the last among the best increases the willingness to switch careers and reduces the likelihood of having a more prestigious occupation. To do so, we exploit a discontinuity in the class assignment that sends the median student to either a better or a worse class within the same major program in a flagship university in Brazil. Since the skill difference between classes varies within and between programs, we find that the ranking effect can be cancelled by a high increase in peer quality. Our findings imply that the perceived rank sends a misleading signal, making similar students in the same program take distinct decisions and have different long-term outcomes. Higher parental education and stronger convictions about future earnings make them less influenced by this signal.