Article

Theory and Decision

, Volume 64, Issue 1, pp 37-63

On Ordinal Utility, Cardinal Utility and Random Utility

  • Richard BatleyAffiliated withInstitute for Transport Studies, University of Leeds Email author 

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Abstract

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.

Keywords

Ordinal utility Cardinal utility Random Utility Model Log sum Rule-of-a-half

JEL Classification

B41 Economic Methodology D01 Microeconomic Behaviour Underlying Principles