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Revisiting the evidence for cardinal treatment of ordinal variables

Carsten Schröder () and Shlomo Yitzhaki ()

European Economic Review, 2017, vol. 92, issue C, 337-358

Abstract: Well-being (life satisfaction or happiness) is a latent variable that is impossible to observe directly. Moreover, it does not have a unit of measurement. Hence, survey questionnaires usually ask people to rate their well-being in different domains. The common practice of comparing well-being by means of averages or linear regressions ignores the fact that well-being is an ordinal variable. Since data is ordinal, monotonic increasing transformations are permissible. We illustrate the sensitivity of empirical studies to monotonic transformations using examples that relate to well-known empirical papers, and provide two theoretical conditions that enable us to rank ordinal variables. In our examples, monotonic increasing transformations can in fact reverse the conclusion reached.

Keywords: C18; C23; C25; I30; I31; I39; Satisfaction; Well-being; Ordinal; Cardinal; Dominance (search for similar items in EconPapers)
Date: 2017
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Working Paper: Revisiting the Evidence for a Cardinal Treatment of Ordinal Variables (2015) Downloads
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