Arrow's impossibility theorem
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
Arrow's impossibility theorem was proved by Kenneth Arrow in Social Choice and Individual Values (1951). It shows that no ranked voting system (one where voters rank the options in order) can always turn individual rankings into a social ranking that meets a small set of reasonable fairness conditions all at once. One such condition is that no single person dictates the outcome. The theorem matters because it shows that "the will of society" cannot always be read off cleanly from individual wishes. It is a founding result of social choice theory and of the study of government failure.
Example
Three members of a panchayat rank three projects: road, school and well. Member 1 ranks road over school over well. Member 2 ranks school over well over road. Member 3 ranks well over road over school. By majority, road beats school, school beats well, and well beats road. The group's preferences go in a circle, so there is no consistent winner.
Don't confuse with
- Public choice theory: it studies how self-interested voters, politicians and officials behave. Arrow's theorem is a mathematical limit on combining preferences, whoever the voters are.
Related concepts
- Monetarism
- Chicago school
- Cantillon effect
- Adaptive expectations
- Rational expectations
- Lucas critique
- Real business cycle theory
- Tinbergen rule
- Austrian school
- Economic calculation problem