Saturday, December 06, 2008

How Individuals Can Choose, Even Though They Do Not Maximize Utility

1.0 Introduction
I think of this post as posing a research question. S. Abu Turab Rizvi re-interprets the primitives of social choice theory to refer to mental modules or subroutines in an individual. He then shows that the logical consequence is that individuals are not utility-maximizers. That is, in general, no preference relation exists for an individual that satisfies the conditions equivalent to the existence of an utility function. I have been reading Donald Saari on the mathematics of voting. What are the consequences for individual choice from interpreting this mathematics in Rizvi's terms?

I probably will not pursue this question, although I may draw on these literatures to present some more interesting counter-intuitive numerical examples.

2.0 Arrow's Impossibility Theorem and Work-Arounds
Consider a society of individuals. These individuals are "rational" in that each individual can rank all alternatives, and each individual ranking is transitive. Given the rankings of individuals, we seek a rule, defined for all individual rankings, to construct a complete and transitive ranking of alternatives for society. This rule should satisfy certain minimal properties:
  • Non-Dictatorship: No individual exists such that the rule merely assigns his or her ranking to society.
  • Independence of Irrelevant Alternatives (IIA): Consider two countries composed of the same number of individuals. Suppose the same number in each country prefer one alternative to another in a certain pair of alternatives, and the same number are likewise indifferent between these alternatives. Then the rule cannot result in societal rankings for the two countries that differ in the order in which these two alternatives are ranked.
  • Pareto Principle: If one alternative is ranked higher than another for all individuals, then the ranking for society must rank the former alternative higher than the latter as well.
Arrow's impossibility theorem states that, if there are at least three alternatives, no such rule exists.

Arrow's work has generated lots of critical and interesting research. For example, Sen considers choice functions for society, instead of rankings. A choice function selects the best alternative for every subset of alternatives. That is, for any menu of alternatives, a choice function specifies a best alternative. Consider a rule mapping every set of individual preferences to a choice function. All of Arrow's conditions are consistent for such a map from individual preferences to a choice function.

Saari criticizes the IIA property as requiring a collective choice rule not to use all available information. In particular, the rule makes no use of the number of alternatives, if any, that each individual ranks between each pair. The rule does not make use of enough information to check that each individual has transitive preferences. (Apparently, the IIA condition has generated other criticisms, including by Gibbard.) Saari proposes relaxing the IIA condition to use information sufficient for checking the transitivity of each individual's preference.

Saari also describes a collective choice rule that includes each individual numbering their choices in order, with the first choice being assigned 1, the second 2, and so on. With these numerical assignments, the choices are summed over individuals, and the ranking for society is the ranking resulting from these sums. This aggregation procedure is known as the Borda count. Saari shows that Borda count satisfies the relaxed IIA condition and Arrow's remaining conditions.

3.0 Philosophy of Mathematics
Above, I have summarized aspects of the theory of social choice in fairly concrete terms, such as "individuals" and "society". The mathematics behind these theorems is formulated in set-theoretic terms. The referent for mathematical terms is not fixed by the mathematics:
"One must be able to say at all times - instead of points, straight lines, and planes - tables, chairs, and beer mugs." - David Hilbert (as quoted by Constance Reid, Hilbert, Springer-Verlag, 1970: p. 57)
"Thus mathematics may be defined as the subject in which we never know what we are talking about, nor whether what we are saying is true." -- Bertrand Russell

4.0 An Interpretation
Rizvi re-interprets the social choice formalism as applying to another set of referents. A society’s ranking, in the traditional interpretation, is now an individual’s ranking. An individual’s ranking, in the traditional interpretation, is now an influence on an individual’s ranking. Rizvi’s approach reminds me of Marvin Minsky's society of mind, in which minds are understood to be modular. Rizvi examines the implication’s of Sen’s impossibility of a Paretian liberal for individual preferences under this interpretation of the mathematics of social choice theory.

Constructing natural numbers in terms of set theory allows one to derive the Peano axioms as theorems. Similarly, interpreting social choice theory as applying to decision-making components for an individual allows one to analyze whether the conditions often imposed on individual preferences by mainstream economists can be derived from this deeper structure. And, it follows from Arrow's impossibility theorem, these conditions cannot be so derived in general. Individuals do not and need not maximize utility. On the other hand, Sen's result explains how individuals can choose a best choice from menus with which they may be presented.

  • Kenneth J. Arrow (1963) Social Choice and Individual Values, Second edition, Cowles Foundation
  • Alan G. Isaac (1998) "The Structure of Neoclassical Consumer Theory", working paper (9 July)
  • Marvin Minsky (1987) The Society of Mind, Simon and Schuster
  • Donald G. Saari (2001) Chaotic Elections! A Mathematician Looks at Voting, American Mathematical Society
  • S. Abu Turab Rizvi (2001) "Preference Formation and the Axioms of Choice", Review of Political Economy, V. 13, N. 2 (Nov.): 141-159
  • Amartya K. Sen (1969) "Quasi-Transitivity, Rational Choice and Collective Decisions", Review of Economic Studies, V. 36, N. 3 (July): 381-393 (I haven't read this.)
  • Amartya K. Sen (1970) "The Impossibility of a Paretian Liberal", Journal of Political Economy, V. 78, N. 1 (Jan.-Feb.): 152-157

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