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In social choice theory, Arrow's impossibility theorem, the general possibility theorem or Arrow's paradox is an impossibility theorem stating that when voters have three or more distinct alternatives (options), no ranked voting electoral system can convert the ranked preferences of individuals into a community-wide (complete and transitive) ranking while also meeting a specified set of criteria: unrestricted domain, non-dictatorship, Pareto efficiency, and independence of irrelevant alternatives. The theorem is often cited in discussions of voting theory as it is further interpreted by the Gibbard-Satterthwaite theorem. The theorem is named after economist and Nobel laureate Kenneth Arrow, who demonstrated the theorem in his doctoral thesis and popularized it in his 1951 book Social Choice and Individual Values. The original paper was titled "A Difficulty in the Concept of Social Welfare".
In short, the theorem states that no rank-order electoral system can be designed that always satisfies these three "fairness" criteria:
If every voter prefers alternative X over alternative Y, then the group prefers X over Y.
If every voter's preference between X and Y remains unchanged, then the group's preference between X and Y will also remain unchanged (even if voters' preferences between other pairs like X and Z, Y and Z, or Z and W change).
There is no "dictator": no single voter possesses the power to always determine the group's preference.
Cardinal voting electoral systems are not covered by the theorem, as they convey more information than rank orders.[2][3] However, Gibbard's theorem extends Arrow's theorem for that case. The theorem can also be sidestepped by weakening the notion of independence.[citation needed]
The axiomatic approach Arrow adopted can treat all conceivable rules (that are based on preferences) within one unified framework. In that sense, the approach is qualitatively different from the earlier one in voting theory, in which rules were investigated one by one. One can therefore say that the contemporary paradigm of social choice theory started from this theorem.[4]
The practical consequences of the theorem are debatable: Arrow has said "Most systems are not going to work badly all of the time. All I proved is that all can work badly at times."
The need to aggregate preferences occurs in many disciplines: in welfare economics, where one attempts to find an economic outcome which would be acceptable and stable; in decision theory, where a person has to make a rational choice based on several criteria; and most naturally in electoral systems, which are mechanisms for extracting a governance-related decision from a multitude of voters' preferences.
The framework for Arrow's theorem assumes that we need to extract a preference order on a given set of options (outcomes). Each individual in the society (or equivalently, each decision criterion) gives a particular order of preferences on the set of outcomes. We are searching for a ranked voting electoral system, called a social welfare function (preference aggregation rule), which transforms the set of preferences (profile of preferences) into a single global societal preference order. Arrow's theorem says that if the decision-making body has at least two members and at least three options to decide among, then it is impossible to design a social welfare function that satisfies all these conditions (assumed to be a reasonable requirement of a fair electoral system) at once:
Non-dictatorship
The social welfare function should account for the wishes of multiple voters. It cannot simply mimic the preferences of a single voter.
Unrestricted domain, or universality
For any set of individual voter preferences, the social welfare function should yield a unique and complete ranking of societal choices. Thus:
It must do so in a manner that results in a complete ranking of preferences for society.
It must deterministically provide the same ranking each time voters' preferences are presented the same way.