ordinal utility


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ordinal utility

the (subjective) UTILITY or satisfaction that a consumer derives from consuming a product, measured on a relative scale. Ordinal utility measures acknowledge that the exact amount of utility derived from consuming products cannot be measured in discrete units, as implied by CARDINAL UTILITY measures. Ordinal measures instead involve the consumer ordering his or her preference for products, ranking products in terms of which product yields the greatest satisfaction (first choice), which product then yields the next greatest satisfaction (second choice), and the product which then yields the next greatest satisfaction (third choice), and so on. Such ordinal rankings give a clear indication about consumer preferences between products but do not indicate the precise magnitude of satisfaction as between the first and second choices and the second and third choices, etc.

Ordinal utility measures permit consumer preferences between two products to be shown in the form of INDIFFERENCE CURVES which depict various combinations of the two products that yield equal satisfaction to the consumer. Assuming ‘rational’ consumer behaviour (see ECONOMIC MAN), a consumer will always choose to be on the highest possible indifference curve, although the increase in satisfaction to be derived from moving from a lower to a higher indifference curve cannot be exactly determined. Nevertheless, INDIFFERENCE MAPS can be used to construct DEMAND CURVES. See DIMINISHING MARGINAL UTILITY.

References in periodicals archive ?
Ordinal utility was still quantitative utility, and it was not clear how marginal utility could be purely ordinal.
is an ordinal utility function for Gina if, whenever Gina ranks one bundle over a second bundle, this function assigns the first a higher number.
Third, we trace the influence of Voigt's contribution to ordinal utility theory on subsequent writers.
While very few scholars would consider that the champions of cardinal utility are subjectivist, things are different when it comes to the advocates of ordinal utility.
In regard to choice theory, this special issue includes the famous 1900 paper with the surprisingly general title 'Summary of some chapters of a new treatise on pure economics by Professor Pareto', which provided economic science with its first comprehensive discussion of, and formalisation of, economic equilibrium using ordinal utility based on direct observation of choice.
Theoretical Background The most important problem in solving preference learning problems is the definition of an appropriate loss for each decision f(x; [alpha]) whereas the true ordinal utility is given by y.
Assume two representative individuals who reside in two countries with identically ordinal utility functions over two goods, X and Y, of the Cobb-Douglas type:
First, this analysis abandoned any notion of measurable, cardinal "utility" (or satisfaction), relying instead on Hicks's (1939) reformulation of neoclassical economics in terms of purely ordinal utility and Vilfredo Pareto's definition of social welfare.
If preferences are only representable by an ordinal utility function, they cannot be compared at all (p.
Woo claims that economics took the wrong road when ordinal utility and revealed preference were used to completely divorce the theory of consumer behavior from psychology and the measurement of utility.
It also assumes familiarity with the philosophical underpinnings of ordinal utility and revealed preference and with various approaches to estimating family equivalence scales.
The Manuale, or perhaps the more internationally read Manuel, is now well recognised for its pioneering and seminal contribution to ordinal utility theory.