Arrow's Impossibility Theorem

Dictionary Says

Definition of 'Arrow's Impossibility Theorem'


A social-choice paradox illustrating the impossibility of having an ideal voting structure that is reflective of specific fairness criteria, such as Pareto efficiency. Arrow's impossibility theorem states that a clear order of preferences cannot be determined while adhering to mandatory principles of fair voting procedures.

Investopedia Says

Investopedia explains 'Arrow's Impossibility Theorem'


For example, the following shows the type of problem typical of an election. Consider the following example, where voters are asked to rank their preference of candidates A, B and C:

• 45 votes A > B > C (45 people prefer A over B and prefer B over C)
• 40 votes B > C > A (40 people prefer B over C and prefer C over A)
• 30 votes C > A > B (30 people prefer C over A and prefer A over B)

Candidate A has the most votes, so he/she would be the winner. However, if B was not running, C would be the winner, as more people prefer C over A. (A would have 45 votes and C would have 70). This result is a demonstration of Arrow's theorem.

comments powered by Disqus
Hot Definitions
  1. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  2. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  3. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  4. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
  5. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
  6. Maritime Law

    A body of laws, conventions and treaties that governs international private business or other matters involving ships, shipping or crimes occurring on open water.
Trading Center