Editing Ordinal utility (section)

== Related concepts ==
=== Indifference curve mappings ===
{{Main|indifference curve}}
Instead of defining a numeric function, an agent's preference relation can be represented graphically by indifference curves. This is especially useful when there are two kinds of goods, ''x'' and ''y''. Then, each indifference curve shows a set of points <math>(x,y)</math> such that, if <math>(x_1,y_1)</math> and <math>(x_2,y_2)</math> are on the same curve, then <math>(x_1,y_1) \sim (x_2,y_2)</math>.

An example indifference curve is shown below:

[[File:Simple-indifference-curves.svg|200px|indifference map]]

Each indifference curve is a set of points, each representing a combination of quantities of two goods or services, all of which combinations the consumer is equally satisfied with. The further a curve is from the origin, the greater is the level of utility.

The slope of the curve (the negative of the [[marginal rate of substitution]] of X for Y) at any point shows the rate at which the individual is willing to trade off good X against good Y maintaining the same level of utility. The curve is convex to the origin as shown assuming the consumer has a diminishing marginal rate of substitution. It can be shown that consumer analysis with indifference curves (an ordinal approach) gives the same results as that based on [[cardinal utility]] theory — i.e., consumers will consume at the point where the marginal rate of substitution between any two goods equals the ratio of the prices of those goods (the equi-marginal principle).

=== Revealed preference ===

[[Revealed preference theory]] addresses the problem of how to observe ordinal preference relations in the real world. The challenge of revealed preference theory lies in part in determining what goods bundles were foregone, on the basis of them being less liked, when individuals are observed choosing particular bundles of goods.<ref>{{cite conference
| title =         Revealed Preference Theory
| author=     Chiaki Hara
| date=         6 June 1998
| book-title= 7th Toiro-kai meeting (1997/1998)
| url=            http://www.societies.cam.ac.uk/cujif/ABSTRACT/980606.htm
}}</ref>
<ref>{{cite journal
 |title       = Mistakes in Choice-Based Welfare Analysis
 |author      = Botond Koszegi
 |author2     = Matthew Rabin
 |journal     = American Economic Review: Papers and Proceedings
 |volume      = 97
 |issue       = 2
 |pages       = 477–481
 |date        = May 2007
 |url         = http://elsa.berkeley.edu/~botond/mistakeschicago.pdf
 |url-status     = dead
 |archive-url  = https://web.archive.org/web/20081015203300/http://elsa.berkeley.edu/~botond/mistakeschicago.pdf
 |archive-date = 2008-10-15
|doi      = 10.1257/aer.97.2.477
 |citeseerx      = 10.1.1.368.381
 }}</ref>