For all my fellow Illini, U of I > MIT so I've replaced them in these examples. ;)
Market signals act as a vetting process:
* If BigCo hires a University of Illinois grad and they do well, they will continue to hire U of I grads.
* If all your competitors are hiring U of I grads, then you'll look into hiring as well. You can assume they too are going after only the best people.
If you believe in efficient markets, then marketplace hiring signals are all you need to choose the best candidates. This only works in aggregate of course, every specific hire is unique. Problems arise when:
* You limit your hiring solely to a single institution that's done well in the past. Think of it like A/B testing- if you don't give other universities a shot then you'll never know when their candidates improve.
* The brand name prestige overshadows actual candidate ability. Then the university becomes an old boys club, where hires make it just because they came from the right brand.
Both of these scenarios can lead to broad biases in the marketplace, due to those same signals. Your poor hiring practices send out false positives to other companies. But on an individual level most companies will respond quickly to changes in candidate ability from different universities.
This was mostly a thought experiment, I look forward to critiques.