Lecture C4 (2020-09-29): Cardinal Social Welfare

In this lecture, we visit the foundations of different notions of utility. The lecture starts with a discussion of ordinal utility at the individual level and discusses a common example (from the St. Petersburg Paradox) that suggests cardinal utility may be better at predicting individual human behavior. We then describe how cardinal utility allows for an absolute scale on which to combine individual utilities into social welfare functions. The bulk of the lecture describes different features of classes of social welfare function (Benthamite (Utilitarian), Rawlsian (minimax), Egalitarian, and Cobb--Douglas). Ultimately, we hint at how the subjectivity underlying the choice of social-welfare function suggests that perhaps an ordinal framework (such as Pareto optimality) may provide for more defensible ways to model social welfare when discussing economic markets.