Cardinal and Ordinal Utility

The concepts of cardinal and ordinal utility have been under discussion and controversy for a long time. Know the key difference between these two, the ideology behind them and find the use of these theories in economics.

What Is An Utility?

When a product or service satisfies the buyer or consumer, that satisfactory feeling felt by the consumer is called the utility of that product or service. This utility differs from product to product and depends on the consumer’s perception and mentality; what you enjoy may not be enjoyed by others, and others may not get satisfaction with the utility. Some say this utility cannot be measured and can only be felt, yet some theories believe in quantifying this utility.

Many theories describe and analyze this utility. The two very famous theories are cardinal and ordinal utility. The basic thought process behind the theories is that cardinal theory believes in measuring the utility felt in each unit. In contrast, the ordinal utility believes this emotion felt in utility cannot be measured.

The feeling of satisfaction felt by consumers after using the product is measured in units by the theory made by Alfred Marshall. This is called cardinal utility.

For example – the ice cream of that brand has 50 utils. Alfred Marshall believed that just like time, length, mass etc., are measured in units. Similarly, the utility can also be measured in a unit. And just like units kilograms, seconds, or meters, the utility unit is “UTILS”.

Whereas professor JR Hicks believed that utility is an emotion, it cannot be defined in the number of units. It may only help in qualitative analysis and is not quantifiable. Therefore there is no unit of utility according to this ordinal utility theory.

The Major differences between Cardinal and Ordinal utility

Parameters

Cardinal utility

Ordinal utility

Ideology

As Alfred Marshall made the unit UTILS, the good feeling called the product’s utility, felt by the consumer, can be measured in quantifiable terms.

The satisfactory feeling called the utility of the product, felt by the consumer cannot be measured. But the feeling or emotion can be qualitatively arranged in order of preferences, like less or more.

Units

The unit of cardinal utility is utils.

There is no unit of ordinal utility; it is arranged in relative order. Like less or more.

Reality and practical use

It is practically not possible to measure emotions and feelings in units.

It is a more realistic way of telling your feelings and emotions like you can say you liked something more than the other.

Theory

Professor Alfred marshall

devised this theory. Professor JR Hicks devised this theory.

Psychology

It is thought to be measurable even though the utility is a feeling.

These feelings are subjective, hence here, utility is considered as non-quantifiable.

Numbers involved

Cardinal utility quantifies utility in terms of numbers.

The ordinal utility believes that the utility cannot be expressed in numbers.

Also called as

Utility analysis

Commodity indifference curve

Examples

I get 40 utils after using the company’s headphones with 60 utils while using Bluetooth AirPods.

I prefer Bluetooth AirPods over headphones because AirPods are better than the latter.

Applications

Applications include welfare economics, marginalism, intertemporal utility

Applications include subjective conclusions on the utility of products in day to day life

Conclusion

Cardinal utility and ordinal utility are two different theories for utility. But the basic question was utility, customer satisfaction or that good feeling that makes your consumer buy your product is called utility in layman’s language.

Various economists gave theories like Alfred Marshall gave cardinal utility theory, whereas HICKS devised ordinal utility theory. Although the cardinal utility may seem to be quite impractical because measuring the feeling of satisfaction in number may sound an impossible thing, whereas ordinal utility is a very realistic approach, just like usually consumers express their feelings on the product, this theory is somewhat similar, which tells the relative utility by words like more or less.

The ordinal utility might not tell you an exact magnitude like cardinal, but it is still used more in day to day life by the general public.