Since most production functions are quasiconcave over inputs, negative selection is a cheap method of increasing expected return. You lose some outliers and also people who would be good in those rare domains with quasiconvex production functions, but our system is optimized for the average case.

In the college admissions example, a top school wants to admit undergraduates likely to become successful doctors/lawyers/businesspeople and alumni donors, not gamble that the smart kid with a few Bs in high school is going to revolutionize a scientific field in 15 years. Even if they did, their undergraduate institution would be only the third most important on their CV, after their current institution and where they got their PhD.

This is a good example of individual selection being suboptimal from a group perspective. Each top school would prefer that some other top school gamble on said smart kid, and then if they have the chops for research they can try to grab them when they apply to graduate school or go on the academic job market. Positive selection on undergraduates is just not a smart strategy from an individual institution's perspective since most undergraduates will be going into more conventional fields.