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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: mishedlo who wrote (34602)6/29/2005 1:00:47 AM
From: Elroy JetsonRead Replies (4) of 306849
 
The improper usage of hedonics is made most clear by one fact.

Hedonic adjustments have never once been used to increase the price of any product which has declined in quality. Apparently we live in the best of all possible worlds where everything always improves.

Tomatoes used to be red, ripe and delicious. They were replaced with flavorless pink tomatoes as hard as a potato -- the CPI declines. No Hedonic adjustment necessary.

Red ripe tomatoes are again available, in addition to the pink tomatoes - but these are a luxury product which are not tomatoes for the purposes of the CPI. Only the pink tomatoes which previously replaced the red, ripe tomatoes are tomatoes.

As the general quality of American products declines, the CPI in moderated by the same amount. But when a product is "improved" a Hedonic adjustment is made.

Many autos are no longer large enough to include a spare tire, so it is replaced by a self-inflating tire good for 300 miles. This "improvement" is an excuse to Hedonically lower the car's price by some amount like $500. Why would anyone buy a tire good for 35k miles when they can pay only $500 more and purchase a tire good for only 300 miles.

How many more "quality improvements" of this type can we withstand before we are living like the British did in 1968, as reflected in television shows like "Are You Being Served?"
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