The Efficiency of Pleasure

Everyone knows why people like PDAs. They do three things. They give you status. They make you feel efficient. And they allow you to get away with ignoring people at the 10.30am meeting.

Perhaps the best are the BlackBerry sort, which permit you to interact with the person of your choice - the one to whom you are sending the text message - even as you shut out the one rabbiting on at the oval table. It emerges that people will do a lot to get an opportunity to snub one another - type tiny buttons with their thumbs, fork over big bucks.

But are those bucks so big? Not really, says a new study produced for the National Bureau of Economic Research. Three professors - Paul Chwelos of the University of British Columbia, Ernst Berndt of the Massachusetts Institute of Technology and Iain Cockburn of Boston University - studied both price changes in the coveted portable digital assistants (PDAs) and also changes in the product since it was introduced. Their conclusion will please all gadget lovers: PDAs are a better deal than ever.

Compare the mighty PDA of today with the first Apple Newton presented by John Sculley more than a decade ago. The Newton and other early such products - IBM's Simon - were too big and unwieldy to be stashed in the vest pocket. Indeed, some were so heavy they weighed down one's briefcase like stones. What's more, the toys certainly did not deliver real-time messages, at least not well. Yet they cost a lot: the Newton MessagePad went for $699; AT&T's EO "personal communicator", which used cellphone-style technology, cost $1,990. Today's products by contrast - wireless, pretty, light, and featuring biometric security - often go for under $500, or even $100.

Not that this is such big news for a country that grew up on Moore's Law. The added value in the NBER study is that it seeks to quantify precisely how much more people are getting for their money than they used to. The authors used as their measure so called "hedonic indices" - the phrase comes from the same root as the word "hedonism". Such indices seek to measure utility and satisfaction.

The scholars found that in the years between 1999 and 2004 the same product - in terms of memory, functionality, power - declined in price an average of 21-24 per cent a year. Or, to put the story another way, a PDA that cost you $500 in 1999 would cost you about $135 today. The authors note that the increase in value for dollar has been even more dramatic for laptops and desktops. The whole situation in any case provides department heads with the chance to tell themselves they are spending less even as they spend more.

Some economists would, by the way, argue that this is an impossibility. Back in the 1990s, a variety of pressures drove the Clinton administration to recalibrate its inflation measures using hedonic indices. Sure, a telephone or a car might have a higher price tag than earlier models, government statisticians announced. But whatever nominal increase in price there was for a given class of object, that was more than offset by technological improvements in the newer models. Inflation was therefore less than had been supposed. Since certain benefits are linked to inflation rates, a lower inflation figure meant lower outlays for the government.

The change also reduced citizens' (nominal) tax bill since it altered the tax rate schedule. And, finally, there was the kicker: if inflation was actually lower than it had seemed, that also meant that a greater share of US increases in growth were real. Like magic, the newly adjusted indices made the country seem as if it were growing faster.

Many of us believed the adjustments helped the government to data capture the advances of the high-tech era. But they were also awfully convenient.

This fact was not lost on European economists, some of whom charged and came in for a lot of criticism from non-American inflation hawks.

Which leads us back to the corporate budget and PDAs' alleged efficiency. Should CFOs be like Washington's lawmakers and allow the argument to get through? Or should they block higher outlays? After all, as many users will admit, PDAs may not be quite as efficient as advertised. No one uses every feature. And sometimes the blowhard one attempts to shut out in the meeting is actually conveying useful information.

Still, employees clearly find their PDAs pleasurable. Which brings us to the ultimate management question: to what extent, if any, is pleasure efficient?

Message me when you find out the answer.

© Copyright 2004 Financial Times

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