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So, for instance, I hear that Purdue is really great for electrical engineering; so is MIT. If someone is accepted at both, would they be so opposed to the idea of going somewhere prestigious - again with the endless pot of money thrown in - that they would choose Purdue? It's a kind of misplaced piety.
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I think you may be misunderstanding what's going on here. No one is talking about looking at two schools and automatically rejecting the more prestigious one because it's more prestigious and well, we wouldn't want any of THAT.
We're talking about looking at schools for the sole purpose of, or caring mostly about, whether they are prestigious or not, as opposed to trying to find the best program and setting for the individual students' needs, wants and desires. Is MIT more prestigious than Purdue? Sure. Are there valid reasons for a student accepted to both to choose MIT? Of course -- the list is long and many. However, are there valid reasons for a student accepted to both to choose Purdue? Of course.
IME, the question isn't used to "place" status; it's a conversation starter, along the lines of "what do you do for a living."