ordinal utility

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A utility function is ordinal if it can be subjected to any positive strictly monotonic transformation without altering the preferences it represents. Consider the preferences of a consumer depicted by a set of indifference curves. A utility function that represents these preferences can be constructed by assigning a number to each curve, with the numbers having the property that if x is preferred to y then the indifference curve on which x lies is assigned a higher number than the indifference curve on which y lies. The constructed utility function is ordinal. The numbers assigned to the indifference curve can be transformed in any way provided that the ranking of the numbers is retained: if one indifference curve has a higher number before the transformation it must have a higher number after the transformation. Ordinal utility conveys no more information than that contained in the indifference curves. The observation that the utility from choice x is greater than the utility from choice y means only that x lies on a higher indiffererence curve than y. See also cardinal utility; interpersonal comparisons.

Subjects: Economics.

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