What’s the real purpose of hedonics?
Friday, January 9th, 2009What’s the use of hedonic regression when measuring CPI? Let’s say I buy a new laptop computer at the same price as my old one, but it’s twice as powerful. According to the arbitrary guidelines of a hedonic regression model, prices must then have fallen, driving CPI down. But, in nominal terms I spent the same amount of money for a laptop. I’m pretty sure I can’t even find one on the market with the components I got last time even if I wanted to.
It seems to distort the fact that I spent a certain amount of money buying a computer, period.
Ah, you say, but with this new and sleek machine you must be twice as productive, or derive twice the pleasure. Well, you know, what if all I do is e-mail and play Tetris? How am I more productive or experiencing stronger sensations of pleasure now, because I have more empty disk space?
I think The Illusions of Hedonics, is well worth reading.
If math worked like economics, 1 + 1 would in fact be able to equal 3, if you could prove you got an extra 1 worth of pleasure out of it.