In the economics world, happiness is referred to as utility. There are two kinds of utility that economists use to gauge the amount of happiness a certain decision brings people. These are called cardinal and ordinal utility.
Cardinal Utility
Cardinal utility was first introduced by Jeremy Bentham as an aspect of his philosophy called utilitarianism in 1780 with his book “An Introduction to the Principles of Morals and Legislation.” It assumes that happiness is a quantifiable subject. For example, not only can someone rank which goods they prefer to others, but they can actually measure by exactly how much according to an objective standard. The unit of measurement for happiness is called a util. Happiness could possibly be measured by a hedonometer, a tool that tries to gauge the happiness that different individuals receive from certain imagery and decisions. However, this most likely can’t take into account emotions and personal experiences that could change. A statement that’s indicative of cardinal utility is: “I get about 10 utils of satisfaction from drinking apple juice, and I get 5 utils of satisfaction from drinking water. Therefore, I prefer drinking apple juice twice as much as drinking water.”
Quantifying happiness proved to be extremely difficult, if not impossible. You have to calculate individual happiness while also taking into account the different circumstances and emotions that each individual has. Thus, cardinal utility is seen as viable only in specific cases, such as utilitarian welfare evaluations or decision making under risk such as gambling, where expected gains from decisions could be translated into numerical measurements of expected utility. It is primarily used in game theory, which investigates conflict and cooperation between two rational decision makers.
Ordinal Utility
Ordinal utility assumes that happiness cannot be quantifiable and can really only be gauged by individuals’ subjective values and choices. It is most commonly used in consumer theory, which investigates how consumer preferences play out in the economy. The development of this measurement of happiness was in reaction to the virtual impossibility of calculating happiness with cardinal utility. The first breakaway from cardinal utility was led by Carl Menger of the Austrian school of economics in the late 19th century. This school stresses the subjectivity of individual values and choices in an economy. The first concept of ordinal utility was brought about by Vilfredo Pareto in 1906. Since ordinal utility is only based on general individual preferences, it is more considerate of individual situations and emotions that could change on a dime. Thus, it is a more widely used method of measuring happiness in the economics world.
