Investopedia

Continue to Site »

Arrow's Impossibility Theorem

Filed Under » , ,
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.

Articles Of Interest

  1.

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.

  2. The Two Sides Of Dual-Class Shares

    Find out how dual-class shares can affect a company's performance.

  3. Proxy Voting Gives Fund Shareholders A Say

    You have the right to take part in important company decisions - even if you cannot attend the meetings.

  4. Knowing Your Rights As A Shareholder

    We delve into common stock owners' privileges and how to be vigilant in monitoring a company.

  5. What is the investor rights movement?

    The investor rights movement, also called shareholder activism, refers to the efforts of shareholders of publicly traded companies to ensure managements are more accountable for their actions. ...

  6. Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.

  7. Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.

  8. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  9. Austerity: When The Government Tightens Its Belt

    When a government tightens its belt in tough economic times the entire nation feels the squeeze.

  10. Will Quantitative Easing Be Japan's Savior?

    The quantitative easing program, recently announced by the new governor of the Bank of Japan, Haruhiko Kuroda, is for a cash infusion of $1.4 trillion by the end of 2014. Will it help the Japanese ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  2. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  3. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  4. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  5. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  6. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
Trading Center