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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.
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:
#at least one participant can improve his own outcome while
#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.
==An example==
<div style="float:right">
{|style="border-collapse:collapse; background:none; text-align:center"
|
|
!colspan=2 style="padding:0px 0px 6px 0px"|''B''
|-
|
|
|style="border-style:solid; border-width:1px; padding:6px"|1
|style="border-style:solid; border-width:1px; padding:6px"|2
|-
!rowspan=2 style="padding:6px 6px 6px 30px"|''A''
|style="border-style:solid; border-width:1px; padding:6px"|1
|style="border-style:solid; border-width:1px; padding:6px"|A: bad / B: bad
|style="border-style:solid; border-width:1px; padding:6px"|A: bad / B: good
|-
|style="border-style:solid; border-width:1px; padding:6px"|2
|style="border-style:solid; border-width:1px; padding:6px"|A: good / B: bad
|style="border-style:solid; border-width:1px; padding:6px; background:#999999"|A: good / B: good
|}
</div>
In the case shown at the right side, participants A and B can choose between "1" and "2". The result can either be "good" or "bad".
The highlighted field ("2/2") is the Pareto optimal situation. All other situations can be improved.
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.
[[category:economics]]
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:
#at least one participant can improve his own outcome while
#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.
==An example==
<div style="float:right">
{|style="border-collapse:collapse; background:none; text-align:center"
|
|
!colspan=2 style="padding:0px 0px 6px 0px"|''B''
|-
|
|
|style="border-style:solid; border-width:1px; padding:6px"|1
|style="border-style:solid; border-width:1px; padding:6px"|2
|-
!rowspan=2 style="padding:6px 6px 6px 30px"|''A''
|style="border-style:solid; border-width:1px; padding:6px"|1
|style="border-style:solid; border-width:1px; padding:6px"|A: bad / B: bad
|style="border-style:solid; border-width:1px; padding:6px"|A: bad / B: good
|-
|style="border-style:solid; border-width:1px; padding:6px"|2
|style="border-style:solid; border-width:1px; padding:6px"|A: good / B: bad
|style="border-style:solid; border-width:1px; padding:6px; background:#999999"|A: good / B: good
|}
</div>
In the case shown at the right side, participants A and B can choose between "1" and "2". The result can either be "good" or "bad".
The highlighted field ("2/2") is the Pareto optimal situation. All other situations can be improved.
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.
[[category:economics]]