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Subjective Inflation

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Theoretically there is no need in estimation since Inflation as “persistent increase in the general price level of goods and services in an economy over a period of time” can be well measured. Well… this is only theoretically. There are LOTS of issues in measuring of inflation and even in its definition. A high degree of freedom is used by governments for various manipulations and based on political considerations. Which products are part of the “basket”? How are they monitored? For what period? At which season are they measured? What is the way of averaging? Who are “typical” consumers that represent the country?  Shortly said – “Statistical fairy tale”.

Proposed method of (assuming) better indexing is “Subjective Inflation”. Unlike barely possible comprehensive objective inflation, this one is leveraging a “wisdom of the crowd” to redefine and refine the meaning of inflation. 

A “Wisdom of the crowd” is a tricky one, when there is a need in estimation of anything absolute – such as amount of candies in a vase and apparently it is pretty precise even then. 

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…But it should be very effective in estimation of something that we are is deeply experiencing – inflation. 

We can ask lots of people simple questions such as “how much costs of products you are using changed for last year” and give a bi-directional reference scale, with higher precision around zero to mark. The question here is very important to avoid bias, so probably it has to be defined better. But the idea is clear. Averaging all results would give a very precise “Subjective Inflation” rate. 

The distribution can be used to identify the degree of subjective inequality or how strongly the people differ in their exposure to life expensiveness.  

Interesting to do this kind of experiment. 

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Author: Andrey Gabdulin

www.gabdulin.com Product Development

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