How to measure wellbeing in the digital age

Date:

23 July 2019

Felix Eggers is associate professor at the Faculty of Economics and Business of the University of Groningen.

It’s a happy day for Felix Eggers: years of research has come to fruition with research results published in Proceedings of the National Academy of Sciences of the United States of America.

“We started working on this in 2016, and we saw that it worked,” Eggers said. “Now we do it every year.”

It all began when he was working overseas at the Massachusetts Institute of Technology and began collaborating with Erik Brynjolfsson and Avinash Collis on massive online choice experiments. The international teamwork has continued since. “We Skype weekly or so,” Eggers said.

The question the researchers are trying to answer is how to improve the way economics measures wellbeing. It’s particularly tricky in a time when much human activity -- from checking your bus route on Google Maps, to warning your boss by email that you’re going to be late -- takes place in a digital form that does not incur a monetary transaction.

Once, Gross Domestic Product was used as a proxy for wellbeing: if a country’s economy was growing, its citizens’ welfare could be thought to be improving. This was always a flawed measure for wellbeing, but its limitations are even starker now that some of the most used products in the world, from Facebook to Google’s search engine, do not incur a straightforward cost and therefore are not captured in GDP.

So how to measure those free digital goods?

Experiments begin

An appropriate measure is the consumer surplus. It’s the difference between the amount the consumer is willing to pay for it, and the amount they actually have to pay on the market. However, asking users how much they would pay to use the services if they had to has limitations: as users are accustomed to the services being free, they may be unlikely to express a fair value. A more precise method applied by Eggers and his colleagues is to ask users instead how much they would need to be paid not to use services like email, search engines and instant messaging.

This research took the form of a series of experiments. One approach simply asked consumers to choose between two options: either keeping access to a specific digital good or staying away from it for a specific monetary amount. For example: Would you prefer to a) keep access to all digital maps or b) do not use digital maps for one year in exchange for €1.000? The money offers were randomised according to an experimental design. In the first survey in the United States, the most highly valued goods were search engines: respondents demanded an average of arout $17,000 a year to give them up. Next came email, at around $8,000, and then maps at $3,500.

The next study added an incentive to respondents to answer less hypothetically, zeroing in on how much consumers value Facebook specifically. Eggers and his colleagues added a lottery: one in every 200 respondents would be picked to follow through, and would really have to give up Facebook in order to earn the money. The results showed that the median US consumer values Facebook at $40-50 per month.

Finally, Eggers conducted a laboratory experiment of how much students valued specific services here in Groningen. It found that the students valued WhatsApp much more highly than Facebook. Half of the students would not give up WhatsApp for less than €500 a month.

“That was really surprising, because you would expect that students might not have as much income, and they would accept lower values,” Eggers said. “We followed up on that, and WhatsApp really is the connection to fellow students, and needed to for work assignments, but also to keep up with family that might be somewhere else.”

Facebook stagnates

What next? First of all, as the researchers will soon have the results of experiments spanning four years, their results are developing into something of an index of how online services are valued over time. It’s early days, but the initial data suggest that most services are increasing in value, while Facebook may be stagnating.

More broadly, Eggers hopes the research will contribute to improving how economics measures wellbeing.

“A related working paper looks at how to use these values to create another measure that focuses on the benefits of products and services, rather than the costs: GDP-B,” Eggers said. “And another follow up project is to study potential disadvantages like addiction to digital products.”

It looks like the Skype sessions will be continuing for some time to come.