Ranking Surveys Typically Are Subjective and Have Unintended Consequences.

Ranking Questions

Dec 29, 2011 • Behavioral Economics, Economic Debates, Households, Macroeconomic Measurement, Thinking Economically • 109 Views    No Comments

  • Ranking income distribution, the Organization for Economic Cooperation and Development (OECD) says that Denmark is one of the most equal countries the world while Mexico is one of the least.
  • For overall well-being, Gallup selects Virginia, Wisconsin and New Jersey as the top 3 states in the U.S.
  • U.S. News ranks Harvard and Princeton #1 for 2011.

Yes? Malcolm Gladwell says not necessarily.

Explaining in the New Yorker why ranking is flawed, Gladwell emphasizes that subjective variables are tough to define.  Yes, you can choose a valid list of categories on which to base a list. Then though, it gets tricky. For the colleges list, how to quantify student engagement? Is faculty quality really about degrees and salaries?

Our bottom line: Health care, corporate responsibility, national debt, life expectancy…we see ranks everywhere. When should we be skeptical?

The Economic Lesson

When economist Robert Whaples discusses income inequality (#7) in an excellent Teaching Company series on contemporary economic issues, he first has to define income. And that, he says, is not easy.

  • Collecting data, the Census Bureau does not necessarily recognize noncash public benefits.
  • Retirement and health insurance packages are excluded.
  • Households tend to “underreport nonwage sources of income.”

In addition, changing household size is relevant. We could even debate whether we would learn more from money spent than money earned.

This returns us to the OECD’s income inequality list. Would we agree with their definition of income?

An economic question: For movies or songs, create a list and define your variables. Are they tough to quantify?

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