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Revisiting the evidence for cardinal treatment of ordinal variables

Listed author(s):
  • Schröder, Carsten
  • Yitzhaki, Shlomo

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0014292117300016
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 92 (2017)
Issue (Month): C ()
Pages: 337-358

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Handle: RePEc:eee:eecrev:v:92:y:2017:i:c:p:337-358
DOI: 10.1016/j.euroecorev.2016.12.011
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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