Liberalism, Rationality, and Pareto Optimality
14 Pages Posted: 15 Mar 2021
Date Written: January 23, 2021
Abstract
Rational players in game theory are neoliberal in the sense that they can choose any available action so as to maximize their payoffs. It is well known that this can result in Pareto inferior outcomes (e.g. the Prisoner’s Dilemma). Classical liberalism, in contrast, argues that people should be constrained by a no-harm principle (NHP) when they act. We show, for the first time to the best of our knowledge, that rational players constrained by the NHP will produce Pareto efficient outcomes in n-person non-cooperative games. We also show that both rationality and the NHP are required for this result.
Keywords: Classical Liberalism, No-Harm Principle, Pareto Optimality, Rationality, Non-Cooperative Games
JEL Classification: C72, P16
Suggested Citation: Suggested Citation