Question 5
Question 5
(A) State and explain the assumptions Kenneth Arrow made about social welfare
functions in deriving his impossibility theorem. By providing an example, explain
which of these assumptions is violated by majority rule? [50 marks]
Universal Domain: Arrow assumed that the social welfare function should be defined for all
possible individual preference orderings. This means that any conceivable preference profile
should be accommodated. However, majority rule violates this assumption because it only
considers a subset of preferences—those of the majority. Preferences of the minority are
disregarded, leading to a limited domain of the social welfare function.
Example: Suppose there are three individuals, A, B, and C, and three alternatives, X, Y, and
Z. their preferences are as follows:
A: X > Y > Z
B: Y > Z > X
C: Z > X > Y
Under majority rule, the alternative preferred by the majority prevails. In this example, the
majority preferences are:
A: X > Y > Z
B: Y > Z > X
Individual Sovereignty: Arrow assumed that each individual's preferences should be given
equal importance and that an individual should have the freedom to rank alternatives
according to their own subjective judgment. This implies that no individual's preferences
should be overridden by others. However, majority rule violates this assumption because the
preferences of the minority are subordinated to those of the majority.
Example: Continuing with the previous example, individual C's preferred order is Z > X > Y.
However, under majority rule, alternative Z is not chosen since it does not have majority
support. Individual C's preferences are overridden, and their sovereignty is compromised.
Non-dictatorship: Arrow assumed that no single individual should have the power to
determine the collective outcome regardless of others' preferences. In other words, the social
welfare function should not be dictated by a single person's preferences. Majority rule
satisfies this assumption since no individual acts as a permanent dictator. However, it violates
the other assumptions.
Unanimity: Arrow assumed that if every individual prefers one alternative over another, then
the social welfare function should reflect this preference. This means that if everyone agrees
on a particular order of alternatives, the social choice should reflect that unanimous
preference. Majority rule does not satisfy this assumption because it can lead to outcomes
that are not unanimously preferred.
Example: Consider a scenario where there are three individuals, A, B, and C, and three
alternatives, X, Y, and Z. Their preferences are as follows:
A: X > Y > Z
B: Y > Z > X
C: Z > X > Y
Under majority rule, alternative X would be chosen as it has the majority support (A and B
prefer X over Y and Z). However, this outcome is not unanimously preferred since individual
C prefers alternative Z over X. Therefore, the unanimity assumption is violated.
Example: Suppose we have three individuals, A, B, and C, and three alternatives, X, Y, and
Z. Their preferences are as follows:
A: X > Y > Z
B: Y > X > Z
C: Z > Y > X
Under majority rule, alternative X would be chosen since it has the majority support. Now,
let's consider a scenario where alternative W is introduced:
Even with the introduction of alternative W, the majority still prefers alternative X over the
others. Therefore, the independence of irrelevant alternatives is satisfied by majority rule in
this example.
The majority rule violates the universal domain assumption by disregarding the preferences
of the minority. It also undermines individual sovereignty by prioritizing the preferences of
the majority over those of the minority. However, it does not violate the non-dictatorship
assumption since no individual is a permanent dictator, as the outcome depends on the
majority's preferences in each decision.
While the assumption of single-peaked preferences allows majority rule to satisfy these
assumptions, it is worth noting that this assumption may not always hold in real-world
situations, and other decision-making methods may need to be considered to address the
challenges of social choice.