Arrow’s Impossibility Theorem, presented by economist Kenneth Arrow in his 1951 book “Social Choice and Individual Values,” is a fundamental theorem in social choice theory. It demonstrates the impossibility of designing a social welfare function—a method to aggregate individual preferences into a community-wide ranking—that satisfies all reasonable criteria simultaneously under certain conditions.
The Axioms of Arrow’s Impossibility Theorem
To understand Arrow’s theorem, one must be familiar with the five crucial axioms he established:
1. Unrestricted Domain (Universality)
The social welfare function should accommodate any possible set of individual preferences.
2. Non-Dictatorship
No single individual’s preferences should dictate the group’s preferences.
3. Pareto Efficiency (Pareto Optimality)
If every individual prefers one option over another, the group preference should reflect the same.
4. Independence of Irrelevant Alternatives (IIA)
The group’s preference between any two options should depend only on the individual preferences between those two options, not on preferences regarding other alternatives.
5. Transitivity
If the group prefers option A over B and B over C, then it should also prefer A over C.
The Impossibility Result
Arrow’s theorem states that no social welfare function can satisfy all these axioms simultaneously when there are three or more options to choose from. This result highlights the inherent conflicts in aggregating individual preferences into a fair and consistent group decision.
Historical Context
Kenneth Arrow introduced the impossibility theorem as part of his Ph.D. thesis, which later became the content of his book, “Social Choice and Individual Values.” His groundbreaking work earned him the Nobel Memorial Prize in Economic Sciences in 1972.
Applicability and Examples
1. Voting Systems
In democratic voting systems, Arrow’s theorem explains why no voting method can perfectly translate individual voter preferences into a fair societal choice.
2. Collective Decision-Making
The theorem applies to any scenario where group preferences need to be aggregated, such as committee decisions, legislative voting, and even algorithms in artificial intelligence.
Comparisons and Related Terms
Condorcet Paradox
The Condorcet Paradox highlights that majority preferences can be cyclic (e.g., A is preferred to B, B to C, and C to A), creating inconsistency, which aligns with Arrow’s findings on preference aggregation challenges.
Gibbard-Satterthwaite Theorem
This theorem extends Arrow’s theorem to non-dictatorial voting systems, proving that every voting rule with three or more options is susceptible to strategic voting (manipulation).
FAQs
Q1: Does Arrow's Theorem imply we should not vote?
Q2: Can Arrow's conditions be relaxed to create a fair voting system?
References
- Arrow, Kenneth J., “Social Choice and Individual Values,” Yale University Press, 1951.
- Sen, Amartya, “Collective Choice and Social Welfare,” Penguin Books, 1970.
- Gibbard, Allan, “Manipulation of Voting Schemes: A General Result,” Econometrica, 1973.
- Satterthwaite, Mark A., “Strategy-proofness and Arrow’s Conditions: Existence and Correspondence Theorems for Voting Procedures and Social Welfare Functions,” Journal of Economic Theory, 1975.
Summary
Arrow’s Impossibility Theorem is a cornerstone of social choice theory, illustrating the limitations inherent in creating a perfect voting system. It fundamentally impacts economics, political science, and decision-making, prompting ongoing research and debate on how best to structure collective preferences.