Quality Bias

Quality bias in price indexes occurs when an index ignores changes in the quality of the goods it measures.

An example would be enhanced performance of personal computers. Generally speaking, greater and greater speeds and features have become available, without substantial increase in price. If economist only looks at the price of a computer generally, she will the quality change from these factors.

Quality bias can cause a consumer price index (CPI) to be overestimated, since a CPI may not completely reflect quality improvements.

Quality bias works both ways. Faster computers with enhanced performance require greater memory and more expensive support software. Most personal computers were previously bundled with software, but now come only with a basic operating system and a requirement for the purchaser to purchase the bundled software after a "trial period", so the actual VALUE per dollar is much lower. Obsolescence is built into most personal electronics, shortening their useful live, again lowering the actual value. All these issues make the quality bias tend to be negative rather than positive. As products and the manufacturing methodology advances, the cost of manufacture is expected to go down, and improved products are part of every product life cycle, and many products go through repeated cycling. An example is the automobile. Quality bias is most often seen in a negative manner in the cases of mature products as companies lower their acceptance standards in order to increase their profit margins. There is no effective measure for declining quality, unfortunately, which is why some nations such as Germany and Japan have developed very meticulous standards for nearly everything, including services. The DIN and JIS enable anyone to evaluate whether or not an article has been properly produced. There is no such standard in the U.S., except for some scattered attempts by insurers to control electrical quality (UL), engineering standards, such as ASME and ASTM, Automotive, such as ASE ISO is not an effective standard and does not compare with JIS or DIN because it is self-imposed, self-regulated, and self-inspected by the very people it is designed to regulate.