Hedonic valuation method

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As hedonic ( Greek ἡ ἡδονή hē HEDONE , "desire", "joy") refers to an evaluation method , the object according to its intrinsic (internal) and extrinsic (outer) judged values. The word is derived from the English word hedonic (" lust- "), which comes from the Greek . The hedonic valuation method is used , for example, for economic statistics on inflation or real estate prices .

Basics

In the United States since around the 1990s, in Great Britain , Australia , New Zealand and in Germany, increasingly since the introduction of the euro in 2002, inflation and economic growth have been calculated hedonically. The attempt is made to quantify assumed increases in the quality of products and to take them into account mathematically. This leads to lower inflation rates and, depending on the country and industry, an estimated growth rate of up to 30% higher.

In the USA, the introduction of hedonic price calculation was called for by the then head of the US central bank, Alan Greenspan . Because inflation is influenced by key interest rates and the money supply , when inflation is lower, the key interest rates can be lowered and the money supply increased by the central bank. In addition to inflation, money supply growth is also based on increased economic growth. In the USA, social benefits are also often adjusted to the inflation rate. The wage policy is also based on the inflation rate.

In hedonic price calculation, a good is mentally (subjectively) broken down into quality characteristics and then, with the help of so-called regression analysis, the influence of these quality characteristics on the price is determined. In this way, those price changes that are based on qualitative changes in certain properties can be mathematically separated from the other price changes and inflation developments.

The Federal Statistical Office has always taken qualitative changes into account when determining changes in the price level. In addition to hedonic methods, other quality adjustment methods are also used in price statistics. The aim is always to quantify the price differences caused by differences in quality and to deduct them when determining the index. Without such a quality adjustment, improvements or deteriorations in the average quality of goods would be reflected in the price indices, which makes a meaningful interpretation of the measured price development difficult.

The hedonic quality adjustment is a statistical method with which the influence of individual product features, such as the size of the hard drive on desktop PCs, is offset against the price (regression). The monetary value of the quality difference between the model to be replaced and the replacement model should be determined and shown separately. By quantifying the change in quality, the "pure" price development can be determined.

Application examples

The processor speed of the computers offered increased from 2,000 MHz to 3,000 MHz in the course of 2005. However, the CPU prices remained constant on an annual average. The increase in the clock frequency of the processors from 2,000 MHz to 3,000 MHz represents an increase in performance of 50 percent. This means that the prices for CPUs of the same quality fell by a third in the course of 2005 in the consumer price statistics. In other words, at the same sales prices, productivity increased by 50 percent with processor performance. Although there was no price change over the course of the year, the consumer price statistics in our example for processors indicate a price decrease of a third (inflation reduction) and economic growth appears to have increased by 50 percent.

With new features such as B. TFT screens instead of tube monitors , attempts are made to quantify the qualitative gain. Whether or not there is qualitative progress is therefore a discretionary decision of the statistician.

Hedonic pricing is also used to determine property prices. The value of the property is estimated on the basis of its physical properties such as size, condition, standard of construction and location value (composed for example of infrastructure such as public transport, schools and shopping facilities and, if applicable, recreational value).

criticism

In view of the rapid development in the field of computer hardware , the hedonic price method is controversial. A personal computer from 2000 had the same computing power as an entire data center from 1980 and is compared with its price using the hedonic method. In the year 2000, however, this computing power was already necessary for a typical Windows PC to carry out everyday office work such as writing a text. Many more programs run in the background on a PC like this today than in the past (such as the automatic retrieval of e-mails and anti-virus programs with an ever larger database). It is therefore problematic to equate the multiplication of the computing power with a multiplication of the quality. The demands of current software on processor performance are also growing faster than the processor performance itself. Compared to a PC that is two years older, the computer hardware is twice as powerful, but for the user doing the same work on the newer PC there can even be a loss of performance.

If rail transport is delayed or if food is prepared with cheaper ingredients, this may not be considered as a deterioration in the quality of the goods or services concerned. Likewise, the useful life of consumer articles that are becoming shorter -lived, which usually decreases in parallel with the increase in performance, is often ignored.

Demarcation

The adjective hedonic is derived from the term hedonism , the pursuit of sensual pleasure and enjoyment. Through the hedonic price determination, reference was originally made to the correspondingly increasing increase in pleasure that is associated with improvements in quality.

Web links

Wiktionary: hedonic  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. ↑ This is how statisticians trick with currency devaluation . In: focus.de , p. 3. 
  2. ↑ Randall C. Kennedy: Fat, fatter, fattest: Microsoft's kings of bloat . InfoWorld. April 14, 2008. Retrieved August 22, 2011.