Cardinal utility - Definition

Cardinal utility attempts to provide a cardinal ranking of alternatives, providing a quantified relationship between two possible consumption choices. A cardinal utility function describes market basket preference in terms of quantity, not quality (see ordinal utility). In contrast to ordinal utility functions, cardinal utility functions define by how much one particular market basket is perferred to another based on what indifference curve passes through that market basket. A cardinal utility function places specific numerical values on each market basket that cannot be multiplied by an arbitrary constant without fundamentally distorting the differences between the values of other market baskets.

Examples of cardinal utility analysis

• After doubling consumption of good x, Joe's utility function doubles in value. Therefore, Joe is now twice as happy after consuming twice as much of good x.
• Joe obtains 5 additional units of utility from consuming an extra unit of good y, while Jill gets 10 additional units of utility. Therefore, giving a book to Jill instead of Joe will result in 5 extra units of utility, making Jill's change in happiness twice as much as Joe's would have been.
• Consumers A and B both consume a market basket of 5 units of both good x and good y. Consumer A gets 50 units of utility from this basket, while consumer B gets 100 units of utility. This market basket makes consumer B twice as happy as consumer A.

This approach is widely discredited since numerical utility values are arbitrary, making interpersonal utility comparison impossible and unreasonable. Cardinal utility comparisons are almost never used in practice, having been replaced by the mainstay of ordinal utility at an early stage in the development of consumer theory.

See Also

• consumer theory