Social choice theory
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Social choice theory or social choice is a theoretical framework for analysis of combining individual opinions, preferences, interests, or welfares to reach a collective decision or social welfare in some sense. A non-theoretical example of a collective decision is enacting a law or set of laws under a constitution. Social choice theory dates from Condorcet's formulation of the voting paradox. Kenneth Arrow's Social Choice and Individual Values (1951) and Arrow's impossibility theorem in it are generally acknowledged as the basis of the modern social choice theory. In addition to Arrow's theorem and the voting paradox, the Gibbard–Satterthwaite theorem, the Condorcet jury theorem, the median voter theorem, and May's theorem are among the more well known results from social choice theory.
Social choice blends elements of welfare economics and voting theory. It is methodologically individualistic, in that it aggregates preferences and behaviors of individual members of society. Using elements of formal logic for generality, analysis proceeds from a set of seemingly reasonable axioms of social choice to form a social welfare function (or constitution). Results uncovered the logical incompatibility of various axioms, as in Arrow's theorem, revealing an aggregation problem and suggesting reformulation or theoretical triage in dropping some axiom(s).
Later work also considers approaches to compensations and fairness, liberty and rights, axiomatic domain restrictions on preferences of agents, variable populations, strategy-proofing of social-choice mechanisms, natural resources, capabilities and functionings, and welfare, justice, and poverty.
Social choice and public choice theory may overlap but are disjoint if narrowly construed. The Journal of Economic Literature classification codes place Social Choice under Microeconomics at JEL D71 (with Clubs, Committees, and Associations) whereas most Public Choice subcategories are in JEL D72 (Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior).
Interpersonal utility comparison
Social choice theory depends upon the ability to aggregate, or sum up, individual preferences into a combined social welfare function. Individual preference can be modeled in terms of an economic utility function. The ability to sum utility functions of different individuals depends on the utility functions being comparable to each other; informally, individuals' preferences must be measured with the same yardstick. Then the ability to create a social welfare function depends crucially on the ability to compare utility functions. This is called interpersonal utility comparison.
Following Jeremy Bentham, utilitarians have argued that preferences and utility functions of individuals are interpersonally comparable and may therefore be added together to arrive at a measure of aggregate utility. Utilitarian ethics call for maximizing this aggregate.
Lionel Robbins questioned whether mental states, and the utilities they reflect, can be measured and, a fortiori, interpersonal comparisons of utility as well as the social choice theory on which it is based. Consider for instance the law of diminishing marginal utility, according to which utility of an added quantity of a good decreases with the amount of the good that is already in possession of the individual. It has been used to defend transfers of wealth from the "rich" to the "poor" on the premise that the former do not derive as much utility as the latter from an extra unit of income. Robbins (1935, pp. 138–40) argues that this notion is beyond positive science; that is, one cannot measure changes in the utility of someone else, nor is it required by positive theory.
Apologists of the interpersonal comparison of utility have argued that Robbins claimed too much. John Harsanyi agrees that full comparability of mental states such as utility is never possible but believes, however, that human beings are able to make some interpersonal comparisons of utility because they share some common backgrounds, cultural experiences, etc. In the example from Amartya Sen (1970, p. 99), it should be possible to say that Emperor Nero's gain from burning Rome was outweighed by the loss incurred by the rest of the Romans. Harsanyi and Sen thus argue that at least partial comparability of utility is possible, and social choice theory proceeds under that assumption.
Sen proposes, however, that comparability of interpersonal utility need not be partial. Under Sen's theory of informational broadening, even complete interpersonal comparison of utility would lead to socially suboptimal choices because mental states are malleable. A starving peasant may have a particularly sunny disposition and thereby derive high utility from a small income. This fact should not nullify, however, his claim to compensation or equality in the realm of social choice.
Social decisions should accordingly be based on immalleable factors. Sen proposes interpersonal utility comparisons based on a wide range of data. His theory is concerned with access to advantage, viewed as an individual's access to goods that satisfy basic needs (e.g., food), freedoms (in the labor market, for instance), and capabilities. We can proceed to make social choices based on real variables, and thereby address actual position, and access to advantage. Sen's method of informational broadening allows social choice theory to escape the objections of Robbins, which looked as though they would permanently harm social choice theory.
Additionally, since the seminal results of Arrow's impossibility theorem and the Gibbard–Satterthwaite theorem, many positive results focusing on the restriction of the domain of preferences of individuals have elucidated such topics as optimal voting. The initial results emphasized the impossibility of satisfactorily providing a social choice function free of dictatorship and inefficiency in the most general settings. Later results have found natural restrictions that can accommodate many desirable properties.
Since Arrow social choice analysis has primarily been characterized by being extremely theoretical and formal in character. However, since ca. 1960 attention began to be paid to empirical applications of social choice theoretical insights, first and foremost by American political scientist William H. Riker.
A summary of 37 individual studies, covering a total of 265 real-world elections, large and small, found 25 instances of a Condorcet paradox, for a total likelihood of 9.4%:325 (and this may be a high estimate, since cases of the paradox are more likely to be reported on than cases without). On the other hand, the empirical identification of a Condorcet paradox presupposes extensive data on the decision-makers' preferences over all alternatives--something that is only very rarely available.
While examples of the paradox seem to occur occasionally in small settings (e.g., parliaments) very few examples have been found in larger groups (e.g. electorates), although some have been identified.
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