Ordinal Marginal Preference Theory

Abstract

The model in which an individual maximizes his total ordinal or cardinal utility subject to his budget constraint is a paradigm of individual choice theory in economics. The advantage of ordinal utility theory is that utility is immeasurable, but it is inconsistent with common sense, for example, as in the principle of diminishing marginal utility and complementarity defined by cross-derivatives of utility. The advantage of cardinal utility theory is its consistency with common sense, but its problem is that utility is measurable. This leads to a dilemma whenever an economist creates a utility maximization model, as they must either abandon common sense or postulate that utility is measurable. The conundrum of how to develop a utility theory that is immune to this dilemma has remained unsolved until today. This paper presents an ordinal marginal utility theory that solves this puzzle.