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grouchymusicologist comments on College Selection Advice - Less Wrong
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There's no doubt in my mind that something like the Harvard effect you're describing is quite real. What I'm skeptical of is the proposition that it's so extreme that it outweighs a similar MIT effect (for example) even in the case where MIT is objectively the better fit for the student in question.
The nice thing about MIT as an example is that in that case, you can have your cake and eat it - MIT is close enough to Harvard you can take classes at both or transfer if you want. (IIRC, Richard Stallman did just that.)
It's worth noting that you can only attend MIT but take classes at Harvard if MIT doesn't offer them; if you're only attending for one semester of your freshman year, you probably won't be able to take any classes.
Edit: Not actually true, see below. My apologies!
As an MIT student, I can certify that this is false. You can take any Harvard classes that you want as long as you're willing to make the commute. What you may be thinking of is that you often can't get specific credits (e.g. satisfy a humanities requirement) by taking Harvard classes that have equivalents at MIT.