There's a contrarian theory presented by Robin that people go to highly reputable schools, visit highly reputable hospitals, buy highly reputable brands etc. to affiliate with high status individuals and institutions.
But what would a person who completely didn't care about such affiliations do? Pretty much the same thing. Unless you know a lot about schools, hospitals, and everything else, you're better off simply following prestige as proxy for quality (in addition to price and all the other usual criteria). There's no denying that prestige is better indicator of quality than random chance - the question is - is it the best we can do?
It's possible to come up with alternative measures, which might correlate with quality too, like operation success rates for hospitals, graduation rates for schools etc. But if they really indicated quality that well, wouldn't they be simply included in institution's prestige, and lose their predictive status? The argument is highly analogous to one for efficient market hypothesis (or to some extent with Bayesian beauty contest with schools, as prestige might indicate quality of other students). Very often there are severe faults with alternative measures, like with operation success rates without correcting for patient demographics.
If you postulate that you have better indicator of quality than prestige, you need to do some explaining. Why is it not included in prestige already? I don't propose any magical thinking about prestige, but we shouldn't be as eager to throw it away completely as some seem to be.
Oddly, I was just reading How to Lie with Statistics the other day, and, well ...
... these data might be very poor, for several reasons.
These are just the three effects I can remember that apply to a study of just this kind.
But how do those skew the result? It's not enough to say that there's bias; you would have to show that the bias works against the claimed conclusion. So with respect to your points:
1) If you don't have a reason to believe the bias skews one way or the other, knowledge that it could be higher or lower doesn't matter.
2) The wealthier you are, the easier you are to track down, so the survey would tend to over-state the average income.
3) True, but again, do you have a reason to believe it goes one way rather than the other? (I admit I will never understand ... (read more)