ECNM10118 Political Economy

Lecture 2: Social Choice

Evgeniya Kudinova

University of Edinburgh

Semester 2, Week 2

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 1 / 22

What is social choice?

Aggregating individual preferences into societal preferences

The beginning of political economy

Central question for rationalizing political outcomes (at least in democracies)

What is the best way to aggregate preferences?

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 2 / 22

Condorcet: majority voting rule

Consider 3 individuals: 1, 2, and 3

Preferences over alternative a and b

1 2 3
a b a
b a b

Majority rule: a always chosen

Great with 2 alternatives!

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 3 / 22

Condorcet’s paradox
Suppose there are 3 alternatives: a, b, and c

Preferences
1 2 3
a b c
b c a
c a b

Pairwise majority rule:

a against b: a wins
a against c: c wins
b against c: b wins
⇒ a ≻S b ≻S c ≻S a (≻S : collective preference)
Majority rule (with pairwise comparison): decision impossible!
Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 4 / 22
How rare is the cycle?

Gehrlein & Fishburn (1976):

Probability increases with number of voters and with number of alternatives!

16% chance with 3 voters and 5 alternatives

31.8% chance with 7 voters and 7 alternatives

41.5% chance with very large electorate and 8 alternatives

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 5 / 22

Can we find a better aggregation rule?

Set of alternatives A = {a, b, ...}

Society of N (odd) individuals: i ∈ {1, 2, 3, ...}

Individual i’s preference ordering over alternatives: ⪰i

Social welfare function (SWF) = preference ordering for society (choice): ⪰S

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 6 / 22

Can we find a better aggregation rule?

Desirable properties of SWF:

Unanimity (or Pareto Efficiency): If everyone agrees that a is better than b, then a ⪰S b

Completeness (or Unrestricted Domain): Preferences over all alternatives

Transitivity: If a is preferred to b, b is preferred to c, then a is preferred to c: a ⪰S b and

b ⪰S c ⇒ a ⪰S c

Independence of Irrelevant Alternatives: Ranking of a and b should be independent of

other alternatives

Non-dictatorship: There is no individual i such that if q ≻i q ′ , then q ≻S q ′

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 7 / 22

Can we find a better aggregation rule?

Arrow’s Impossibility Theorem

If a set of alternatives A consists of 3 or more alternatives, the only SWFs that satisfy
unanimity, completeness, transitivity, and independence of irrelevant alternatives, violate
non-dictatorship.

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 8 / 22

Can we find a better aggregation rule?

Arrow’s Impossibility Theorem

If a set of alternatives A consists of 3 or more alternatives, the only SWFs that satisfy
unanimity, completeness, transitivity, and independence of irrelevant alternatives, violate
non-dictatorship.

How to move forward?

i. Restriction on preferences
ii. Institutions

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 8 / 22

Restriction on preferences: Single-peaked preferences

Denote utility of a voter i by Ui (q)

Suppose that every voter i has an ideal (bliss) point: q i

Definition: Preferences of voter i are single-peaked when:

If q ′′ ≥ q ′ ≥ q i or q ′′ ≤ q ′ ≤ q i , then Ui (q ′ ) ≥ Ui (q ′′ )

’Classic’ single-peaked functions (very often used):

Quadratic loss function: Ui (q) = −(q − q i )2

Absolute value loss function: Ui (q) = −|q − q i |

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 9 / 22

Median Voter Theorem

Definition: A Condorcet winner is a policy q ∗ that beats any other feasible alternative in a
pairwise majority vote.

Black (1948):

Median Voter Theorem: If all voters have single-peaked preferences over an (ordered) set of
alternatives, a Condorcet winner always exists and coincides with the median voter’s ideal point
qm .

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 10 / 22

Graphical proof

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 11 / 22

Graphical proof

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 11 / 22

Graphical proof

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 11 / 22

Graphical proof

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 11 / 22

Is single-peakedness always sufficient for existence of Condorcet winner?

So far focused on unidimensional set of alternatives A.

What happens in two or more dimensions?

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 12 / 22

Is single-peakedness always sufficient for existence of Condorcet winner?

So far focused on unidimensional set of alternatives A.

What happens in two or more dimensions?

Suppose dim A ≥ 2

N ≥ 3 (odd) voters, with single-peaked preferences over each dimension

Voters vote sincerely: always vote for their most preferred outcome

Majority voting

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 12 / 22

McKelvey’s Chaos Theorem (1976)

McKelvey’s Chaos Theorem (1976) (informally): ’Any outcome is possible’ unless the
median is the same in all dimensions.

=⇒ Through a finite number of voting steps, an agenda setter is able to move the outcome
to any point he likes!

=⇒ Many political decisions are multidimensional, and so manipulable by agenda setter!

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 13 / 22

An example: a la divide the dollar game
Dividing country budget over constituencies:
N constituencies, each cares about its share xi
Budget constraint: N
P
k=1 xk = 1

U(x, q i ) = − N k i k
P
k=1 |xk − q |, with q = 1 and q = 0 if k ̸= i

dim A =?

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 14 / 22

An example: a la divide the dollar game
Dividing country budget over constituencies:
N constituencies, each cares about its share xi
Budget constraint: N
P
k=1 xk = 1

U(x, q i ) = − N k i k
P
k=1 |xk − q |, with q = 1 and q = 0 if k ̸= i

dim A = N

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 14 / 22

An example: a la divide the dollar game
Dividing country budget over constituencies:
N constituencies, each cares about its share xi
Budget constraint: N
P
k=1 xk = 1

U(x, q i ) = − N k i k
P
k=1 |xk − q |, with q = 1 and q = 0 if k ̸= i

Suppose Player 1 (the capital) has the agenda power

The status quo is x0 = (1/N, ..., 1/N)
Each round, Player 1 makes a proposal, which is accepted or rejected by majority rule
(assume each player accepts proposal when indifferent)
If accepted, the proposal becomes the new status quo

Unique equilibrium outcome is (1, 0, ..., 0)

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 14 / 22
An example: a la divide the dollar game

It takes two rounds to the agenda setter to accumulate all wealth

 
N+1 N−1 1 ϵ 1 ϵ
In round 1, Player 1 proposes (e.g.): 2N − 2N ϵ, + , ..., + , 0, ...0 , with
|N N {z N N}
(N−1)/2times
ϵ→0

In round 2, Player 1 proposes: (1, 0, ..., 0)

Problem?

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 15 / 22

An example: a la divide the dollar game

It takes two rounds to the agenda setter to accumulate all wealth

 
N+1 N−1 1 ϵ 1 ϵ
In round 1, Player 1 proposes (e.g.): 2N − 2N ϵ, + , ..., + , 0, ...0 , with
|N N {z N N}
(N−1)/2times
ϵ→0

In round 2, Player 1 proposes: (1, 0, ..., 0)

Problem? Equilibrium relies heavily on sincere voting!

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 15 / 22

Strategic and sincere voting

So far assumed sincere voting: individuals always vote for their preferred alternatives

Is it rational? Need to compare with strategic voting

Strategic voting: individuals’ choice depends on what they expect other people to do

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 16 / 22

Strategic and sincere voting

Time to make your choice: go to Menti.com, enter the code 7908 7717 and cast your vote in
three elections...

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 17 / 22

Strategic and sincere voting

Time to make your choice: go to Menti.com, enter the code 7908 7717 and cast your vote in
three elections...

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Election 1. First-Past-The-Post (FPTP): each voter casts a vote for one candidate. A
candidate with the largest number of votes wins.

Suppose you are group 2 member, and assume voters in groups 1 and 3 vote sincerely. Your
vote?

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 17 / 22

Strategic and sincere voting
Time to make your choice: go to Menti.com, enter the code 7908 7717 and cast your vote in
three elections...

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Election 2. Two-round System (2RS): each voter casts a vote for one candidate. If some
candidate gets at least 50% of the votes (majority), he wins the elections in the first round. If
no-one receives the majority, the two candidates with the most votes in the first round proceed
to the second round, and the candidate with majority in the second round wins the election.

Suppose you are group 3 member, and assume voters in groups 1 and 2 vote sincerely. Your
vote?
Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 17 / 22
Strategic and sincere voting
Time to make your choice: go to Menti.com, enter the code 7908 7717 and cast your vote in
three elections...

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Election 3. Alternative Vote (AV): each voter ranks the candidates (with 1 to best choice, 2
to second best, etc.). A candidate with the fewest first-preferences is eliminated, and the vote
of the voters with such first-preference moves to their second rank. This continues until some
candidate gets a majority.

Suppose you are group 3 member, and assume voters in groups 1 and 2 vote sincerely. Your
vote?
Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 17 / 22
Strategic and sincere voting: difference?

Two alternatives (dim A = 2) ⇒ same outcomes (excluding weakly dominated strategies)

Three alternatives?

Gibbard-Satterthwaite Theorem (sort of): Every voting rule with at least three alternatives
is either dictatorial or manipulable (i.e., sincere voting is not an equilibrium strategy)

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 18 / 22

Strategic and sincere voting: example 1

First-Past-The-Post (FPTP) electoral system: each voter casts a vote for one candidate.
A candidate with the largest number of votes wins.
Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 19 / 22

Strategic and sincere voting: example 1

First-Past-The-Post (FPTP) electoral system: each voter casts a vote for one candidate.
A candidate with the largest number of votes wins.
Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate c wins with 45% of the votes.

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 19 / 22

Strategic and sincere voting: example 1

First-Past-The-Post (FPTP) electoral system: each voter casts a vote for one candidate.
A candidate with the largest number of votes wins.
Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate c wins with 45% of the votes.

Notice: Groups 1+2 = 55%, and they prefer a and b over c... Spoiler effect!

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 19 / 22

Strategic and sincere voting: example 1

First-Past-The-Post (FPTP) electoral system: each voter casts a vote for one candidate.
A candidate with the largest number of votes wins.
Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate c wins with 45% of the votes.

Notice: Groups 1+2 = 55%, and they prefer a and b over c... Spoiler effect!
Solution: Group 2 can vote strategically for a instead of b =⇒ Candidate a wins with 55% of
the votes, and group 2 members are better off (a ≻2 c)!
Duverger’s Law: convergence to two-parties system...
Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 19 / 22
Strategic and sincere voting: example 2
Alternative Vote (AV) (also instant-runoff voting): each voter ranks the candidates (with
1 to best choice, 2 to second best, etc.). A candidate with the fewest first-preferences is
eliminated, and the vote of the voters with such first-preference moves to their second rank.
This continues until some candidate gets a majority.

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 20 / 22

Strategic and sincere voting: example 2
Alternative Vote (AV) (also instant-runoff voting): each voter ranks the candidates (with
1 to best choice, 2 to second best, etc.). A candidate with the fewest first-preferences is
eliminated, and the vote of the voters with such first-preference moves to their second rank.
This continues until some candidate gets a majority.

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate a wins with 55% of the votes (after b’s elimination in the first round)

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 20 / 22

Strategic and sincere voting: example 2
Alternative Vote (AV) (also instant-runoff voting): each voter ranks the candidates (with
1 to best choice, 2 to second best, etc.). A candidate with the fewest first-preferences is
eliminated, and the vote of the voters with such first-preference moves to their second rank.
This continues until some candidate gets a majority.

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate a wins with 55% of the votes (after b’s elimination in the first round)
Notice: Resolves Spoiler effect! But group 3 could be better off with b instead of a...

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 20 / 22

Strategic and sincere voting: example 2
Alternative Vote (AV) (also instant-runoff voting): each voter ranks the candidates (with
1 to best choice, 2 to second best, etc.). A candidate with the fewest first-preferences is
eliminated, and the vote of the voters with such first-preference moves to their second rank.
This continues until some candidate gets a majority.

Preferences:
1 (35%) 2 (20%) 3 (45%)
a b c
b a b
c c a

Sincere voting: Candidate a wins with 55% of the votes (after b’s elimination in the first round)
Notice: Resolves Spoiler effect! But group 3 could be better off with b instead of a...
Solution: Group 3 can strategically rank b as a first choice (instead of c) =⇒ Candidate b
wins with 65% of the votes in the first round!
Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 20 / 22
Do the examples resemble of anything?

FPTP is used to elect MPs in the UK (and other 57 countries - second most popular system)
2011 UK Alternative Vote referendum (proposal to replace FPTP with AV)

Conservatives and labourists campaigned against AV (surprising?)

Proposal rejected by 67.9% of voters

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 21 / 22

What did we learn?
Preferences aggregation without institutions ⇒ Impossibility result

Institutions matter for political outcomes:

impose restrictions on set of alternatives (e.g, parties)

or on available comparisons (e.g., agenda power)
or on aggregation rules (electoral systems) - 2RS in Tutorial 2

Institutions might work, but need to consider voters’ strategic behavior (Gibbard-Satterthwaite
Theorem)

Voters have strong incentives to vote strategically when they do not have similar preferences.

What about when common preferences? Next week...

Lecture 2: Social Choice ECNM10118 Political Economy Semester 2, Week 2 22 / 22