The Consumer Satisfaction Standard
By Bryan Caplan
For the past few years, social scientists have been arguing over the One True Measure of consumer welfare. Most economists still cling to the Demonstrated Preference Standard: If A buys X, then X makes A better off by definition. Psychologists and psychologically-minded economists have been pushing the Happiness Standard: If A buy X and feels happier as a result, then and only then is A better off.
I think both standards have some merit. But I’d like to suggest a middle way. I call it the Consumer Satisfaction Standard. According to this standard, if A buys X, and would do so if he had the chance to make the decision over again, then X makes A better off. The Consumer Satisfaction Standard is less tautologous than the Demonstrated Preference Standard; it allows for the possibility – which we often observe in real life – that a person will not be a satisfied customer. At the same time, if someone complains about X but keeps buying it, the Consumer Satisfaction Standard treats his grousing as empty verbiage.
I started thinking about the Consumer Satisfaction Standard while writing Selfish Reasons to Have More Kids. By the Demonstrated Preference Standard, every kid we have makes us better off – and every kid we don’t have would have would have made us worse off. By the Happiness Standard, every kid we have makes us slightly worse off – at least on average. By the Demonstrated Preference Standard, however, kids turn out to be a great deal. Why? Because over 90% of people who have kids would do it over again – and over 70% of people over the age of forty who didn’t have kids wish they did.
Question: If you applied the Consumer Satisfaction Standard more broadly, what decisions would look the best – and the worst?