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?