2
$\begingroup$

Nash Equilibrium is defined as a solution concept referring to a best outcome which players won't want to unilaterally deviate given the response of other players doesn't change. To me it seems like Nash equilibrium demands that there is no individual blocking (ie it is indivtually acceptable). So, in sense, it talks about individual level welfare.

While Pareto efficiency is an outcome where one or all cannot be made better off without harming someone. To me, Pareto condition is demanding two things - outcome should not be individually blocked (ie they are better off or at par with their endowments at this pareto outcome) and neither should it be jointly blocked ie it should be acceptable to all. So, in sense it talks about societal welfare.

My problem is Wikipedia page refers to Nash equilibrium as a broader concept. In what sense is Nash equilibrium broader?

Picture for reference

$\endgroup$
  • $\begingroup$ You might find this answer helpful : qr.ae/TUhHJF $\endgroup$ – Amit Aug 15 at 0:30
  • $\begingroup$ @Amit Thanks! Its really helpful. $\endgroup$ – Elina Gilbert Aug 15 at 10:08
3
$\begingroup$

I wouldn't say Nash equilibrium is broader than Pareto-efficiency I'd say its different. As all know the sole Nash equilibrium in the Prisoner's dilemma is not Pareto-efficient and the three Pareto-efficient outcomes are not Nash equilibria. That is to say there is no intersection between the two terms and hence none can encompass the other.

I think the main difference comes from the fact that Pareto-efficiency is only concerned with outcomes and not with the mechanisms of strategic interaction. The Nash equilibrium takes this mechanisms into account explicitly. I.e. you cannot obtain a Pareto-efficient outcome in the Prisoner's dilemma as the other player will preempt it.

My advice is: don't read about Game theory on Wikipedia! The first homework in the master's course on GT at my faculty is to find an error in a Wikipedia article on GT and correct it.

$\endgroup$
  • 3
    $\begingroup$ I think your advice about game theory could be expanded to many areas of economics. It turns out that economists don't like contributing to public goods—who would've guessed? $\endgroup$ – Ubiquitous Jul 26 at 13:04
  • $\begingroup$ Seems Econ101 bugs us completely. $\endgroup$ – Grada Gukovic Jul 26 at 13:08
  • $\begingroup$ You are right, Wikipedia is not a source to look for academia. PS: It was sent to me by my friend and it got stuck SINCE. Thanks for great explanation. $\endgroup$ – Elina Gilbert Jul 26 at 13:10
  • $\begingroup$ You should accept Grada's answer so that the question is marked as being complete $\endgroup$ – Brennan Jul 26 at 15:59

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.