Hedonic Prices and Quality Adjusted Price Indices Powered by AI

We develop empirical models that efficiently process large amounts of unstructured product data (text, images, prices, quantities) to produce accurate hedonic price estimates and derived indices. To achieve this, we generate abstract product attributes (or ``features'') from descriptions and images using deep neural networks. These attributes are then used to estimate the hedonic price function. To demonstrate the effectiveness of this approach, we apply the models to Amazon's data for first-party apparel sales, and estimate hedonic prices. The resulting models have a very high out-of-sample predictive accuracy, with $R^2$ ranging from $80\%$ to $90\%$. Finally, we construct the AI-based hedonic Fisher price index, chained at the year-over-year frequency, and contrast it with the CPI and other electronic indices.

@article{bajari2025_2305.00044,
  title={ Hedonic Prices and Quality Adjusted Price Indices Powered by AI },
  author={ Patrick Bajari and Zhihao Cen and Victor Chernozhukov and Manoj Manukonda and Suhas Vijaykumar and Jin Wang and Ramon Huerta and Junbo Li and Ling Leng and George Monokroussos and Shan Wan },
  journal={arXiv preprint arXiv:2305.00044},
  year={ 2025 }
}