Arrows Impossibility

Theorem
K. J. Arrow, A Difficulty in the Concept of Social Welfare, Journal of Political
Economy, LVIII (August 1950), 328-46.
The following proof is drawn from W. Vickery, Utility, Strategy, and Social
Decision Rules, The Quarterly Journal of Economics, 74(4) (1960) 507-35.

Arrows Impossibility Theorem

If the arguments of a social welfare function are restricted to the rankings of the alternative social states in
the preferences of the various individual members of society, then no social welfare function is possible that
satisfies the following (seemingly reasonable) postulates.
1. Unanimity. If an individual preference is unopposed by any contrary preference of any other individual,
this preference shall be preserved in the resulting social ordering. (This is the principal of Pareto
Optimality.)
2. Non-dictatorship. No individual shall enjoy a position such that whenever he expresses a preference
between any two alternatives and all others individuals express the opposite preference, his preference
is always preserved in the social ordering. (Note the term always. It is possible that one could be a
dictator over a limited set of decisions.)
3. Transitivity. The social ranking given by the social welfare function is in each case a consistent ordering
of all feasible alternatives. If x is better than y, then necessarily z is either better than y, or worse than x,
or both.

Arrows Impossibility Theorem

Transitivity. The social ranking given by the social welfare function is in each case a consistent ordering of all
feasible alternatives. If x is better than y, then necessarily z is either better than y, or worse than x, or both.

Possible Rankings of Alternative Z

-----------------------------------worse than x------------------]

[--------------------better than y-------------------------Y

[---------------both--------------]

Arrows Impossibility Theorem

4. Range. There is some universal alternative u such that for every pair of alternatives x and y, and for
every individual, each of the six possible strict orderings of u, x, and y is contained in some ranking of all the
alternatives which is admissible for the individual. (An admissible ranking is one that the social welfare
function is required to be able to rank.)
That is, each of the following possible individual orderings must be permitted and accountable for in the
social welfare function:
uxy
uyx
xuy
xyu
yux

yxu

Arrows Impossibility Theorem

5. Independence. The social choice between any two alternatives shall not be affected by the removal or
addition of other alternatives to the field of feasible alternatives under consideration.
This implies that if xSPy for choices x, y and z, then xSPy for choices x, y, z and w.

Arrows theorem is in effect an attempt to examine how far one can get in constructing social welfare
functions that consider only ordinal preferences.
In our examination of the Samuelsonian condition for Pareto optimal provision of a joint consumption good
we assumed that utility was cardinally measured so that we could weight them and add them. Of course,
we cant really do that and a voting system that permits one vote doesnt do this either. My vote that is
worth $20,000 can be offset by your contrary vote that is worth on $2 to you.

Arrows Impossibility Theorem

Proof
Definition: A set of individuals, D , is defined to be a decisive set for alternative x against alternative y in the
context of a given social welfare function if the SWF is such that whenever all the individuals in D express a
preference for x over y and all other individuals express the contrary preference, then the SWF yields the
social preference of x over y. For example a majority is the decisive set in a simple majority election.
Strategy: Show that a decisive set for one choice will be a decisive set for other possible choices covered by
the range hypothesis. Show that the decisive set can always be made smaller for special cases among these
other possibilities. This implies that with enough iterations we can reduce the decisive set to one individual
who would prevail against all contrary opinions over some issues. This violates the non-dictator assumption
and hence is not compatible with the postulates.

Arrows Impossibility Theorem

If the SWF reveals that xSPy (where SP means socially preferred as revealed by the SWF) there must be a
decisive set
D = { i / xPy for individual i}
That is, the decisive set for x are individuals i who prefer x to y. The decisive set need not be all those with
such preferences but must consider the possibility.
~D = { j / yPx for individual j}
That is, it is possible that all individuals j who prefer y to x can be members on the complementary set.
Now introduce an alternative u that has the following characteristic:
xPyPu for

all members of D and yPuPx for all others.

Note that this might not exist, but if it does the social welfare function must be equipped to deal with it.
By the unanimity postulate ySPu.
By the transitivity postulate then xSPu. Set D is also decisive for the choice of x and u.

Arrows Impossibility Theorem

Thus a set that is decisive for one decision must be decisive for a whole range of decisions.

Now consider a Decisive Set D for the decision of y over u (ySPu) with two proper, non-empty subsets A and
B.
All others are in the non-decisive set ~D
Consider the case where the members of A all have preferences zPyPu and
the members of B all have preferences yPuPz and
the members of ~D all have preferences uPzPy.
If the SWF reveals ySPz then B (a proper subset of D) is decisive for y over z as all others prefer the
alternative.
If the SWF reveals zSPy then, by transitivity, zSPu and A (a proper subset of D) is decisive for z over u as all
others prefer the alternative.

Arrows Impossibility Theorem

Therefore, for any decisive set and some individual preference ranking, there are proper subsets that are
decisive.
By continued iterations, the decisive set for some social choice given the correct individual rankings can be
reduced to a single individual. Since this violates the non-dictator assumptions this SWF is impossible.