Game Theory 101 (#52): Pareto Efficiency

An outcome is Pareto efficient if there is no other outcome that gives at least one player a greater payoff while giving no other player a worse payoff. An outcome is Pareto inefficient if there is at least one other outcome that gives at least one player a greater payoff while giving no other player a worse payoff.

Because expected utility transformations render interpersonal utility comparisons meaningless, Pareto efficiency is the standard measure of efficiency in game theory and economics.

[absbi]

Best explanation of Pareto Efficiency. Thank you!

[dsi]

I would say fight, fight is more efficient because if the Man wins 100 by going to the fight, the woman will also go to the fight because she knows the man will want to maximize his profits, so it's a more efficient way to maximize her profits too.

The opposite reasoning applies to the second game. The woman knows the man will maximize much more going to the fight so she'll chose going to the fight and get 1 rather than risking to split and getting 0.

[jvgama]

Both games relate to the same preferences (in the second there was just a positive afine transformation for the blue player's utilities), and it is difficult to find a criterium to say that one outcome is more efficient than the other. For sure not the Pareto criterium.

There could exist a "group utility" created as a function of each individual utility, but in that case the positive affine transformations would no longer be "neutral", as they would distort the group utility result (as it happens here).

[NightDawnDusk]

Ballet, Fight, no one wins
Fight fight seems both benefit

[SchwarzKugelbitz]

What does it even mean to say a Nash equilibrium is efficient?

[MilkGlue-xgvj]

I think that it should be, fight! fight! As in fight! fight!

[SchwarzKugelbitz]

Wait couldn't you do an affine transformation on both the hare and make both of them 3 as well? Doesn't this throw a wrench into Pareto efficiency