Arrows Impossibility Theorem

Reference: Tresch
Kenneth Arrow-1951
How democratic societies should make
decisions about public goods such as defence
Cooperative game theory approach adopted
Minimum set of axioms to guide the decision
making process that is acceptable to the
democratic society
Proved that no decision making process can
simultaneously satisfy all five axioms

Does not imply that democratic societies
cannot make social decisions;
Cannot formulate consistent social decisions
under a minimal set of conditions that would
be acceptable to it
Applies to social decisions on all issues....
Arrows five axioms
1. Universality
2. A complete ordering
3. The Pareto principle
4. The independence of irrelevant alternatives
5. Non-dictatorship

Proof


XX XX XY XY XZ XZ
YY YZ YX YZ YX YY
ZZ ZY ZZ ZX ZY ZX
First column-unanimity, both individuals
prefers X P Y P Z
Therefore, society also prefers
X SP Y SP Z
Column two; suppose society chooses in
favour of person 1; and takes Y SP Z when
there is an disagreement, it must favour
person 1 forever after when the two disagree

Fifth column:
X vs. Y- agree
Y vs. Z & X vs. Z- disagree
X SP Y
Second column: Y SP Z;
Using transitivity X SP Y and Y SP Z; then X SP Z
Societies ranking is same as those for person 1
Disagreement on X and Y

XZ
ZY
YX
Reversing the order of disagreements

ZY
XZ
YX

ZY
YX
XZ
Finally

YX
ZY
XZ
Person 1 is said to be decisive and therefore a
dictator
The implication: consistent social decision
process that generates a complete ordering of
social outcomes may not result from
democratic voting procedures when people
disagree;
It may have to be imposed by some agent who
is in effect a dictator.....

Arrows Impossibility Theorem
1. Universal Admissibility of Individual
Preferences
All possible orderings by indiviudlars are
admissiable
No institutions (e.g., parties) can restrict the
orderings so that certain preferences scales
cannot be expressed
Arrows Impossibility Theorem
2. Positive Association of individual and social values
Given that X>Y is the social ordering, if individuals either raise or
do not change the ranking of X in their preference scales and the
ranking of Y remains unchanged, then
It is still the case that X>Y
This restriction ensures that the method of adding individuals
preference scales reflects, in a nonperverse way, these
preferences: the social ranking of X does not respond negatively
to changes in rankings by individuals
Arrows Impossibility Theorem
3. Independence of Irrelevant Alternatives
If S is a subset of the set of available
alernatives and the preference scales of
individuals change with respect to alternatives
not in S
Then the social ordering for alternatives in S
does not change
Arrows Impossibility Theorem
4. Citizens Sovereignty
For any two alternatives X and Y, there exist individual
preference scales such that X is preferred to Y in the
social ordering
In other words, the social outcome is not imposed
At the extreme, if all individuals should prefer X to Y, then X
cannot be prohibited by the social outcome
Outlaws the possibility that the social outcome is unrelated to
the preference scales of the societys members
Arrows Impossibility Theorem
5. Nondictatorship
For any two alternatives X and Y, there is no
individual such that whenver he or she prefers X
to Y, X is always preferred to Y in the social
ordering
There is no individual who can dictate the social
ordering of alternatives
Arrows Impossibility Theorem
The intent of the assumptions is to link
societys ordering of alternatives to
individuals preference scales in a nonarbitrary
way
We want the social outcome responsive to the
preference scales of individuals
Arrows Impossibility Theorem
Arrow then demonstrates that given these basic
assumptions, no socialordering is possible that
doesnt violate one or the other of the assumptions
There is no method of summing individuals
preferences that satisfies all 5 assumptions
If 1 through 3, then either the 4 or 5 is being violated
(that is, order is imposed from without or from
within)