On Ordinal Utility, Cardinal Utility and Random Utility
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- Batley, R. Theor Decis (2008) 64: 37. doi:10.1007/s11238-007-9046-2
Though the Random Utility Model (RUM) was conceived entirely in terms of ordinal utility, the apparatus through which it is widely practised exhibits properties of cardinal utility. The adoption of cardinal utility as a working operation of ordinal is perfectly valid, provided interpretations drawn from that operation remain faithful to ordinal utility. The article considers whether the latter requirement holds true for several measurements commonly derived from RUM. In particular it is found that measurements of consumer surplus change may depart from ordinal utility, and exploit the cardinality inherent in the practical apparatus.