Is there a catch to this? Are we expected to play this system somehow (list only lower ranked schools, or only schools that are very similar in style?), or should I just go with my gut and be honest?
I think you should just go with your gut here. I'd guess adcoms do not see or really care about this much. I'm sure it goes in some database along with your demographic information and someone occasionally writes up some sort of report about the type of person who applies to their program.
I think for the majority of schools, it doesn't matter at all. There may be one or two schools that cares, but I think most just use it for their own statistical purposes.
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