4 - Preference ordering and measurement

Abstract

This chapter discusses the issue of how preference relations are expressed in such decision-making. Rational choice, as discussed in the previous chapter, presupposes that we can at least choose the best option, and that we can order the options in the desired order. Also, irrational and bad decision-making is considered to be choosing the least desirable option. Since irrational choices can be thought of as mirror images of rational choices, I will discuss rational preferences, their measurement, and the problem of quantification of preference relations. In traditional economics, preference relations are discussed from the perspective of utility, and rational choice is sometimes discussed from the perspective of utility maximization. In psychology, quantitative expressions of preferences are sometimes discussed from the perspective of psychological scaless. Therefore in this chapter, I will introduce the concept of utility deduced from the observation of choice behavior and briefly introduce the traditional concept of ordinal utility theory. Ordinal utility theory has been postulated in many economic theories and is also used in psychology to discuss preferences under the name of ordinal scales. In this chapter, I will first introduce the idea of axiomatic measurement theory, which is the basic representation of preference relations, and the quantitative expression of preference relations based on it.