A Note on the Effects of Extreme Price Values on Price Indexes
We examine the effects of extreme price values on the Fisher and Tornqvist index formulas. Using a simple model, we first consider the impact of outliers on the unweighted arithmetic, harmonic, and geometric means of a collection of values. Then, under the same model, we investigate the effect of a single extremely high or low price on the price index formulas (weighted means). Our exploration leads to some general rules regarding the relative robustness of the Fisher and Tornqvist indexes. We illustrate these with empirical results based on airfare data from the Department of Transportation's Origin and Destination Survey.