From Mean and Median Income to the Most Adequate Way of Taking Inequality Into Account

Authors

Vladik Kreinovich, The University of Texas at El PasoFollow
Hung T. Nguyen, New Mexico State University - Main CampusFollow
Rujira Ouncharoen, Chiang Mai UniversityFollow

Publication Date

7-2014

Comments

Technical Report: UTEP-CS-14-39a

Published in: Van-Nam Huynh, Vladik Kreinovich, Songsak Sriboonchitta, and Komsan Suriya (eds.), Econometrics of Risk, Springer Verlag, Berlin, Heidelberg, 2015, pp. 63-73.

Abstract

How can we compare the incomes of two different countries or regions? At first glance, it is sufficient to compare the mean incomes, but this is known to be not a very adequate comparison: according to this criterion, a very poor country with a few super-rich people may appear to be in good economic shape. A more adequate description of economy is the median income. However, the median is also not always fully adequate: e.g., raising the income of very poor people clearly improves the overall economy but does not change the median. In this paper, we use known techniques from group decision making -- namely, Nash's bargaining solution -- to come up with the most adequate measure of "average" income: geometric mean. On several examples, we illustrate how this measure works.