Author Topic: Hedonic Pleasure Index? Has is really come to this?  (Read 6359 times)

the fixer

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Hedonic Pleasure Index? Has is really come to this?
« on: January 25, 2013, 07:51:22 AM »
http://www.marketwatch.com/story/hedonic-pleasure-index-going-beyond-the-cpi-2013-01-23

At some point you've just gotta think "maybe the convenience of iPads isn't worth the stress it causes figuring out how much to save for retirement so I can have the latest generation model for the rest of my life."

arebelspy

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #1 on: January 25, 2013, 08:23:28 AM »
It's an interesting point I'll have to think more on, and I hope Wade writes more about.

It's not necessarily the "I need the latest iPad" idea, as one could scoff, but the old idea of the government not calculating CPI correctly.

Normally I disagree, but the point about improvements not being counted is interesting.

Imagine a 50-year retirement, and you have 1960s standard of living today.  It won't be that extreme, I'd imagine, but nor is it a "I don't care about the latest iGadget so this doesn't affect me."

It's yet another retirement wrinkle, that's all.

Thanks for sharing the link.
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kolorado

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #2 on: January 25, 2013, 08:37:25 AM »
I did not realize that's how the government figured the CPI. Yikes! No wonder the elderly are never seen to buy anything new after retirement at 65. They are frozen in time by force. There is only so much you can "substitute" before you need to move in with your kids or grandkids.

Nords

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #3 on: January 25, 2013, 10:45:57 AM »
Imagine a 50-year retirement, and you have 1960s standard of living today.  It won't be that extreme, I'd imagine, but nor is it a "I don't care about the latest iGadget so this doesn't affect me."
You've just described my parents-in-law.

When their condo building was rewired with FIOS a few years ago, my FIL decided that he's getting the whole Internet for free... as part of the price that he's paying for his digital TV & phone package.  Otherwise they're still turning off every lightbulb they can, turning down the thermostat, and mostly bickering about every penny that's spent.

DoubleDown

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #4 on: January 25, 2013, 11:07:27 AM »
I've wondered about this too -- how changes we can't even imagine could affect us financially far into the future. That, and I also wonder if I've adequately planned for (or even thought of) large expenses that fall well outside the monthly or even annual regular budget. Things such as needing to remodel a home that's very outdated or falling into disrepair 30 years later, or needing a new (used) car after 10 years, etc. Or when the new Whatever is invented that revolutionizes life and you want/need. Generally all I've done to plan for this is to save up "extra", beyond the 3-4% SWR, and also being okay with the idea that I can withdraw principal if needed on these occasions, particularly in old age.

the fixer

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #5 on: January 25, 2013, 12:09:08 PM »
Things such as needing to remodel a home that's very outdated or falling into disrepair 30 years later, or needing a new (used) car after 10 years, etc.

I think you can model these using depreciation of your existing assets, and treat that as an expense. If you figure you'll need a new car every 10 years and you assume you should be able to get a price for a car that keeps pace with inflation, that becomes easy to predict. For a home what I've seen is to set aside a certain amount per month as an average maintenance cost.

Yes, the problem with all this is my assumption that you can get a new car 10 years from now for today's price adjusted by the CPI. There could theoretically also be new expectations for what features a sell-able home has, forcing you to do extra renovation. But I still think this is okay. Maybe, for example, all the cars 10 years from now have stability control, drive-by-wire, TPMS, and other government-mandated safety features that push the price up. But two major factors counter this for a resourceful retiree:
  • I'm buying used, so I'm only paying a small portion of the price of these new features compared to the total price of the car, making the increase much smaller
  • I'm growing, learning, and becoming more resourceful over time. Ten years from now I'm sure I'll be much better at knowing where/when to shop, negotiating prices, and doing my own repairs than I am today. This factor alone makes me suspect I can pay less next time after accounting for inflation.
The above two assumptions don't apply to most conventional retirees, so I put this in the wall of shame as an illustration of how much harder it is to plan for retirement when you treat it the same as your 30s and 40s minus a steady job with benefits.

jrhampt

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #6 on: January 25, 2013, 12:41:59 PM »
I am still confused about why homes "need" to be remodeled if there's nothing specifically broken.  I get why you might want to upgrade for efficiency's sake -- better windows, more insulation, more efficient appliances when the old ones break, etc. -- but "needing" to remodel because stainless steel is in or your countertops aren't trendy enough has always confused me.

strider3700

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #7 on: January 25, 2013, 03:09:07 PM »
assuming you never intend on moving and screw the resale value when the kids try to sell your house after you died in it  the yes updates don't really matter.  If however you intend to sell houses that look like they haven't been worked on in 40 years are going to worse on the market.  Around here in this market that means non updated houses don't sell unless dirt cheap.

grantmeaname

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #8 on: January 25, 2013, 04:10:56 PM »
Wait to update it until you sell then. No use putting new countertops in every 5 years.

chucklesmcgee

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #9 on: January 26, 2013, 08:35:58 AM »
The article makes a lot of sense. CPI is useful for determining a sort of raw inflation of identical goods across time for determining value of our currency, but doesn't take into account changing qualities or upgrades of products which is a big part of lifestyle cost. Both factors are useful for getting a complete economic picture.

KGZotU

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #10 on: January 26, 2013, 04:54:02 PM »
Can somebody help me reconcile this with the following from Wikipedia?
Quote
Bias due to quality improvement

The CPI measures the cost of purchasing a product without accounting for the quality of the product. As a result, when consumers choose to buy higher-quality cars or computers, the CPI can increase despite the fact that lower-cost products are still available. While this occurred because the consumer was able to afford higher quality products, the resulting CPI increase can be a sign of economic difficulty. Additionally, the value to the consumer may increase by a greater factor than the cost, again resulting in an apparent decrease in purchasing power when measured in cost per car, as in the CPI, but an actual increase in purchasing power when measured in cost over value.
My (naive) understanding of CPI is that it is a function of  consumer preference. It seems as though the article and Wikipedia disagree on this point.

Nords

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #11 on: January 26, 2013, 09:38:41 PM »
I am still confused about why homes "need" to be remodeled if there's nothing specifically broken.  I get why you might want to upgrade for efficiency's sake -- better windows, more insulation, more efficient appliances when the old ones break, etc. -- but "needing" to remodel because stainless steel is in or your countertops aren't trendy enough has always confused me.
My spouse tells me that's the key difference between my preference for good design and her taste in excellent décor.

I like an efficiently-designed low-flush toilet, but she likes her bathrooms to have doors.  Go figure.

NWstubble

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #12 on: January 27, 2013, 01:08:23 AM »
Quote
For example, the price of a car may rise by $1,000, but if the government determines that $750 of this represents quality improvements such as improved emissions or side air bags, then they will only count a price increase of $250 when calculating the price index.

I knew the CPI wasn't perfect, but really!?

So the government raises emission or safety standards requiring manafucturers to comply and driving up the cost of a car. But then determines those are "quality" improvements and decides the CPI should not be fully adjusted to reflect the actual cost increase to consumers. These kind of economics hurt my brain.

Am I missing something or is that really how it works?

Nords

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #13 on: January 27, 2013, 02:35:14 PM »
I knew the CPI wasn't perfect, but really!?
So the government raises emission or safety standards requiring manafucturers to comply and driving up the cost of a car. But then determines those are "quality" improvements and decides the CPI should not be fully adjusted to reflect the actual cost increase to consumers. These kind of economics hurt my brain.
Am I missing something or is that really how it works?
Yep.  But a car isn't a significant fraction of the CPI alongside groceries and utility expenses.

Charles Fishman's book "The Wal-Mart Effect" quotes research claiming that the company actually single-handedly depresses the CPI by 10-15%.

StarswirlTheMustached

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #14 on: February 01, 2013, 03:24:18 PM »

Imagine a 50-year retirement, and you have 1960s standard of living today.

You say this like it's a horrible fate. So the consensus is: lifestyle inflation is bad, unless everyone around you is inflating, too?

arebelspy

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Re: Hedonic Pleasure Index? Has is really come to this?
« Reply #15 on: February 01, 2013, 07:23:43 PM »

Imagine a 50-year retirement, and you have 1960s standard of living today.

You say this like it's a horrible fate. So the consensus is: lifestyle inflation is bad, unless everyone around you is inflating, too?

There's a difference between lifestyle inflation on useless consumerism versus modern comforts.

Naturally none of it is necessary for a happy life, but some of it sure is nice. 

But please, go ahead and prove me wrong and get rid of your computer/Internet, or anything else made in the last 50 years.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."