What is Social Choice Theory?

Social Choice Theory is an economic theory that considers whether a society can be ordered in a way that reflects individual preferences. The theory was developed by economist Kenneth Arrow and published in his book Social Choice and Individual Values in 1951.

Key Takeaways

  • Social choice theory is concerned with finding an optimal method that aggregates individual preferences, judgements, votes, and decisions for good rule.
  • Kenneth Arrow is generally credited with laying the groundwork for social choice theory but the groundwork was laid by Nicolas de Condorcet in the 18th century.
  • Arrow's book specifies five conditions that a society's choices must meet to reflect individual choices.
  • These include Universality, Responsiveness, Independence of Irrelevant Alternatives, Non-imposition, and Non-dictatorship.

Understanding Social Choice Theory

Frenchman Nicolas de Condorcet laid the groundwork for social choice theory in a 1785 essay. The essay included the jury theorem. In the theorem, each member of a jury has an equal and independent chance of making the correct judgement on whether a defendant is guilty. Condorcet showed that the majority of jurors is more likely to be correct than each individual juror, thereby making the case for collective decision-making. Condorcet's paradox builds upon his previous theorem and proposes that majority preferences can be irrational. Thus, Condorcet showed that while collective decision making is preferable to individual decisions, there are still problems associated with it.

The theory of social choice asks whether it is possible to find a rule that aggregates individual preferences, judgements, votes and decisions in a way that satisfies minimal criteria for what should be considered a good rule. Social Choice Theory considers all sorts of individual choices, not just political choices.

Ordering society in a way that reflects these many and varied individual preferences is therefore difficult. Arrow specifies five conditions that a society's choices must meet to reflect the choices of its individuals. These include Universality, Responsiveness, Independence of Irrelevant Alternatives, Non-imposition, and Non-dictatorship. Arrow's Impossibility Theorem states that it is impossible to order society in a way that reflects individual preferences without violating one of the five conditions.

Another notable contributor to social choice theory is Jean Charles de Bourda, a contemporary of Condorcet, who developed an alternative voting system known as Borda Count. Other contributors to the theory include Charles Dodgson (better known as Lewis Carroll) and Indian economist Amartya Sen. 

Example of Social Choice Theory

To consider a political example, under a dictatorship, decisions about social choices and the ordering of society are made by a small group of people. In an open democratic society, each individual has an opinion about how society should best be ordered.