What is hedonic quality adjustment?
Hedonic quality adjustment is one of the techniques the CPI uses to account for changing product quality within some CPI item samples. Hedonic quality adjustment refers to a method of adjusting prices whenever the characteristics of the products included in the CPI change due to innovation or the introduction of completely new products. The use of the word hedonic to describe this technique stems from the words Greek origin meaning of or related to pleasure. Economists approximate pleasure to the idea of utility a measure of relative satisfaction from consumption of goods. In price index methodology, hedonic quality adjustment has come to mean the practice of decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes. The CPI obtains the value estimates used to adjust prices through the statistical technique known as regres
