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Added a few useful references I found online via a quick search. Also added the reference back to Mr. Pareto and included the term "Pareto dominate"
In [[Game Theory]] and [[economics]], the concept of '''Pareto efficiency''' (or '''Pareto optimality''') is a method to judge the [[efficiency]] of a set of decisions made by the participants.
In [[Game Theory]] and [[economics]], the concept of '''Pareto efficiency''' (or '''Pareto optimality''') is a method to judge the [[efficiency]] of a set of decisions made by the participants. It was named after [[Vilfredo Pareto]].
A set of decisions "x/y" (meaning that participant A chooses "x" while participant B chooses "y") is called Pareto optimal if there is '''no''' other state in which:
A set of decisions "x/y" (meaning that participant A chooses "x" while participant B chooses "y") is called Pareto optimal if there is '''no''' other state in which:
#no other participants receives a worse outcome than he does now.
#no other participants receives a worse outcome than he does now.
Putting it into less formal style: As long as a player can improve his outcome without hurting anybody else, the situation is not Pareto efficient.
Putting it into less formal style: As long as a player can improve his outcome without hurting anybody else, the situation is not Pareto efficient.
If a participant can improve his outcome without hurting anybody else, the new decision set '''Pareto dominates''' the old one.
==An example==
==An example==
For example, in "1/2" ("bad" for A, "good" for B), A could switch to "2". The result improves A's result to "good" while leaving B's result unchanged.
For example, in "1/2" ("bad" for A, "good" for B), A could switch to "2". The result improves A's result to "good" while leaving B's result unchanged.
==External links==
*[http://wilcoxen.cp.maxwell.syr.edu/pages/225.html Pareto Efficiency] by Peter J. Wilcoxen
*[http://www.chass.utoronto.ca/~osborne/2x3/tutorial/PE.HTM Definition of Pareto efficiency] by Martin J. Osborne
[[category:economics]]
[[category:economics]]