Using massive online choice experiments to measure changes in well-being

Abstract

Digital technologies have transformed the nature of production and the types of goods and services consumed in modern economies. Yet our measurement framework for economic growth has not fundamentally changed since the 1930s. In principle, a better approach is now feasible. Specifically, changes in consumer surplus (compensating expenditure) are superior to changes in GDP as a measure of changes in consumer well-being, especially for digital goods. In practice, consumer surplus has been difficult to measure. We explore the potential for massively scalable online Single Binary Discrete Choice experiments to measure changes in consumer surplus for digital goods. Through these experiments we seek to measure consumers' willingness to accept compensation for losing access to various digital goods and thereby estimate the changes in consumer surplus from these goods. Because very large numbers of Americans can now be reached electronically, changes in consumer surplus and other new measures of well-being derived from online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts. Our results indicate that digital goods have created enormous gains in well-being which are largely missed by conventional measure of GDP and productivity, and suggest that our approach can be scaled up to a broader set of goods and services. Two limitations of our methods are that they are much less precise than changes in GDP and they suffer from hypothetical bias. We estimate how much of an improvement in precision can be achieved with a larger sample size and various demographic controls and we document the direction and magnitude of bias present in our approach by conducting an incentive compatible study for Facebook. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, these methods could provide an estimate of annual changes in consumer well-being.