Blog 33: Big Mac Index by Xavier Lo, FIA, FRM, MBA

I hope you guys are not hungry [肚餓] when you read this, because this blog has a bit to do with food. Have you guys ever thought about how you can compare the purchasing ability [購買能力] of people across countries? In other words, if I was earning Hong Kong Dollars, could I afford to buy products which were overseas? To answer this, perhaps you might consider comparing the price of an average lunch between countries. However, what you consider an average lunch might be different to another person even within the same country, let alone across different countries. Hence one way to deal with this problem is by considering probably the most famous burger [漢堡包] in the world: the Big Mac [巨無霸].

The Big Mac Index [巨無霸指數] is an easy way to do this purchasing power comparison. Big Macs are pretty similar wherever in the world you find a McDonalds [麥當勞]. So in theory, if I can buy a Big Mac in Hong Kong for HKD 20, I would expect the price of a Big Mac in the UK, or the US, or anywhere in the world, to be HKD 20 as well after taking into account exchange rates [匯率]. However, lets say in the UK this was around HKD 30 instead. That tells me my purchasing ability in Hong Kong is lower than the UK, as I would need to spend more of my money to buy a Big Mac there. You might want to take a bit of time to think about this, as this is not the same as talking about living standards [生活水平]!

There are obviously limitations to this index, such as the fact that there aren’t McDonalds in every country, some countries have different sized Big Macs, and some countries don’t even offer the Big Mac as an option (like India)! Also, I am aware this index sounds like another joke – I apologise to people who took TOAST seriously. However, this is definitely a legitimate index, which shows that even everyday simple items might hold more information than you think. Who says being an actuary can’t be fun?!

Xavier Lo, FIA, FRM, MBA
Qualified fellow actuary (in UK and Hong Kong), Financial Risk Manager, and MBA graduate (listed on the Dean's List) with a passion for insurance, data science, and analytics. Experienced in a broad range of insurance roles (pricing, capital modelling, reserving, ERM), along with a touch of knowledge in banking. Member of the General Insurance Committee (2021), Actuarial Innovation Committee (2019 - 2021) in ASHK.
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