Interpersonal comparisons

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Updated: Aug 20, 2021

Comparing the welfare of one individual with that of another. The welfare level of an individual is measured by a ’utility function. Utility can be ordinal so that it is no more than a numbering of indifference curves. An ordinal utility function can be subjected to any monotonic increasing transformation,/ without changing its meaning: the initial utility function U and the transformed utility U* =f{U) are equivalent. Utility is cardinal when the initial utility function U is equivalent to the transformed function U* = a + bU only under affine transformation. An example of cardinal utility is an expected utility function. Non-comparability means that different transformations can be applied to different consumers’ utilities.

Interpersonal comparisons

If the underlying utility functions are cardinal, there are two important forms of comparability. For cardinal unit comparability the consian multiplying utility in the transformation must be the same for all consumers, but the constant that is added can differ.

Interpersonal comparisons

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.