The Modern Theory

The modern approach to consumer behavior, indifference curve analysis (ICA), is based, in theory, upon “revealed preference.” In actual practice, each (different) indifference curve is the locus of points generated by setting the differential of a utility function equal to a (different) constant. Neoclassical economists maintain that indifference curves, utility and the utility functions from which they are derived, are ordinal, not cardinal, in nature. They also maintain that utility cannot be measured cardinally. That is, an individual can only prefer A to B or be indifferent between them;1 he cannot measure how much he prefers A over B. They also maintain that interpersonal utility comparisons are logically invalid.2 Indeed, the history of economic thought bears eloquent witness to the fact that the concept of ordinal utility triumphed over cardinal utility.