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Going through the application process for several Master's Degrees, I have come across universities that ask what other programmes I am applying to on their application forms. It has been already discussed that there is no obligation on the applicant's part to answer them, but what is the best thing to do from a strategic standpoint?

Do universities frown upon applications to a lot of other places because of the risk that a candidate they admit will accept another offer? Do they gauge the level of confidence/ambition based on how selective other programmes are? How does it affect one's chances? Are there any other considerations?

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From a strategic viewpoint it's best not to reveal this information. Revealing this information would not benefit an applicant in any way.

For example, if you tell a second-tier school that you're applying to lots of first-tier schools, it becomes a bigger risk for them to give you an offer.

I would suggest omitting this information from your application if possible.

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From a perspective of a former member of such selection committees at several occassions, I would say that this information doesn't really harm you. It is foremost an interesting information for the institution where you applying. The institution gets information with which other universities its competing about applicants. For smaller/less known schools/uni it can be a good sign if the applicant also indicates that she/he applied for more prestigous schools. This could trigger a question in the interview such as "why are you applying here?" (saying that it is just a backup is not a good answer ;)
However, it can also be an advantage if you give good reasons (in the interview or your application) why professor X or research lab A at this specific institution is perfect for your research project. Thus, the members of the selection committee see that you are indeed interested in this school (although you applied for other more prestigious schools as well) and would take the offer.
Partially, I agree that this information is a kind of risk, but based on my experiences from such committees (in Germany), this information is not really relevant in the selection process. There might be applicants who reveal that they have applied for >20 institutions which is either an indicator for the strong interest in pursuing a PhD or a just massive try to get into a PhD program without any clear focus. For the selection committee, such a case is hard to assess
To sum up, there are other factors which are far more important and you should focus more on a strong letter of motivation, an interesting research project and nice letters of recommendation (and complete and accurate application documents) than whether revealing information on other applications or not.

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