With the move to on-line classes after spring break in the wake of Covid-19, my University has allowed students to opt to take some, all or none of their courses as pass/fail this semester. By making it optional, students have the opportunity to engage in signaling. A student doing well entering into spring break may elect to take the course for a regular grade confident they will gain a high grade. A student doing poorly entering into spring break may elect to take the course pass/fail. It is easy to concoct a simplified model (think Grossman (1981) or Milgrom (1981)) where there is no equilibrium in which all students elect to take the course pass/fail. The student confident of being at the top of the grade distribution has an incentive to choose the regular grading option. The next student will do the same for fear of signaling they had a poor grade and so on down the line. In equilibrium all the private information will unravel.

This simple intuition ignores the heterogeneity in student conditions. It is possible that a student with a good score going into spring break may now face straitened circumstances after spring break. How they decide depends on what inferences they think, others, employers, for example, make about grades earned during this period. Should an employer simply ignore any grades earned during this period and Universities issue Covid-19 adjusted GPAs? Should an employer conclude that a student with a poor grade is actually a good student (because they did not choose the pass/fail option) who has suffered bad luck?