Hierarchy of Needs and the Measurement of Poverty and Standards of Living

The focus of this study is the idea that choice is hierarchical so that there exists an order of acquisition of durable goods and assets as real incomes increase. Two main approaches to deriving such an order are presented, the so-called Paroush approach and Item Response Theory. An empirical illustration follows, based on the 2019 Eurobarometer Survey.

The study ends with two sections showing first how measures of inequality, poverty and welfare may be derived from such an order of acquisition, second that there is also an order of curtailment of expenditures when individuals face financial difficulties.