Quality bias in

price indices A price index (''plural'': "price indices" or "price indexes") is a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a specific region over a defined time period. It is a statistic des ...

is a kind of mismeasurement if they do not incorporate data on the quality of goods from period to period, as well as their nominal price. Personal computers are a canonical case. Because of improvements in computer chips, greater and greater speeds and features have become available, without substantial increases in price. If only price information on personal computers were used, quality bias would cause growth in a

consumer price index A consumer price index (CPI) is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of Goods, consumer goods and ...

(CPI) to be overestimated, since an equivalent computer would actually be much cheaper in later periods.

Determining quality

Quality bias can work both ways. Faster computers with enhanced performance require greater

memory Memory is the faculty of the mind by which data or information is encoded, stored, and retrieved when needed. It is the retention of information over time for the purpose of influencing future action. If past events could not be remembe ...

and more expensive support

software Software consists of computer programs that instruct the Execution (computing), execution of a computer. Software also includes design documents and specifications. The history of software is closely tied to the development of digital comput ...

. Most

personal computer A personal computer, commonly referred to as PC or computer, is a computer designed for individual use. It is typically used for tasks such as Word processor, word processing, web browser, internet browsing, email, multimedia playback, and PC ...

s were previously bundled with software, but now come only with a basic

operating system An operating system (OS) is system software that manages computer hardware and software resources, and provides common daemon (computing), services for computer programs. Time-sharing operating systems scheduler (computing), schedule tasks for ...

and a requirement for the purchaser to purchase the bundled software after a "trial period", so the actual ''value'' per dollar is much lower.

Obsolescence Obsolescence is the process of becoming antiquated, out of date, old-fashioned, no longer in general use, or no longer useful, or the condition of being in such a state. When used in a biological sense, it means imperfect or rudimentary when comp ...

is built into most personal electronics, shortening their useful live, again lowering the actual value. All these issues make the quality bias tend to be negative rather than positive. As products and the manufacturing methodology advances, the cost of manufacture is expected to go down, and improved products are part of every product life cycle, and many products go through repeated cycling. An example is the automobile. Quality bias is most often seen in a negative manner in the cases of mature products as companies lower their acceptance standards in order to increase their

profit margin Profit margin is a financial ratio that measures the percentage of profit earned by a company in relation to its revenue. Expressed as a percentage, it indicates how much profit the company makes for every dollar of revenue generated. Profit margi ...

s. There is no effective measure for declining quality, unfortunately, which is why some nations such as Germany and Japan have developed very meticulous standards for nearly everything, including services. The

DIN DIN or Din or din may refer to: People and language * Din (name), people with the name * Dīn, an Arabic word with three general senses: judgment, custom, and religion from which the name originates * Dinka language (ISO 639 code: din), spoken ...

and JIS enable anyone to evaluate whether or not an article has been properly produced. There is no such standard in the U.S., except for some scattered attempts by insurers to control electrical quality (such as UL). Engineering standards, such as

ASME The American Society of Mechanical Engineers (ASME) is an American professional association that, in its own words, "promotes the art, science, and practice of multidisciplinary engineering and allied sciences around the globe" via "continuing edu ...

and

ASTM ASTM International, formerly known as American Society for Testing and Materials, is a standards organization that develops and publishes voluntary consensus technical international standards for a wide range of materials, products, systems and s ...

; Automotive, such as ASE and

ISO The International Organization for Standardization (ISO ; ; ) is an independent, non-governmental, international standard development organization composed of representatives from the national standards organizations of member countries. Me ...

are not effective standards and do not compare with JIS or DIN because it is self-imposed, self-regulated, and self-inspected by the very people it is designed to regulate. Makers of price indexes can address the quality bias problem with several steps. The main approach is to use hedonic index methods to capture attributes of products and their implicit prices:The Advisory Commission To Study The Consumer Price Index (aka the Boskin Commission). 1996.
Toward A More Accurate Measure Of The Cost Of Living
(html), also released as
Final Report of the Advisory Commission to Study the Consumer Price Index
(pdf). * Use matching models to relate goods from one period to the next * Gather data on the attributes of goods and use

hedonic regression In economics, hedonic regression, also sometimes called hedonic demand theory, is a revealed preference method for estimating demand or value of a characteristic of a differentiated good. It decomposes the item being researched into its constit ...

s to infer implicit prices for these attributes and the net change in price for a good whose attributes have changed.

References

{{DEFAULTSORT:Quality bias Price indices Price index theory Quality