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Lots of stuff to respond to here, I'll just do a few
1) There are simple reasons no one has mentioned that some cross-admitted students might prefer Harvard or MIT to Caltech: size (Caltech is much smaller) and location (which I guess is related to the "don't like the campus" but while I like Caltech's campus I think Cambridge >> Pasadena.)
2) I don't understand the claim that if top admitted students choose not to attend the admission policy isn't meritocratic. It might not be maximzing the number of highly-rated students who enroll, but "meritocratic" is a property of the admissions procedure, based on an idea of procedural fairness, it is not a property of the outcome of that process in terms of enrollments.
3) I strongly disagree that the quality of fellow students doesn't matter: they are the people students interact with the most, and they also serve as a constraint on the level of the class.
4) I also strongly disagree that one can learn as much taking graduate classes at a "top 50-100 school" as one can at Caltech, MIT, or their competitors. In part this is because grad student quality falls off much more quickly than faculty quality does, and this serves as a constraint on the classes.
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