Liberalism, Rationality, and Pareto Optimality

14 Pages Posted: 15 Mar 2021

See all articles by Shaun Hargreaves Heap

Shaun Hargreaves Heap

affiliation not provided to SSRN

Mehmet Ismail

King’s College London - Department of Political Economy

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

Hargreaves Heap, Shaun and Ismail, Mehmet, Liberalism, Rationality, and Pareto Optimality (January 23, 2021). Available at SSRN: https://ssrn.com/abstract=3771955 or http://dx.doi.org/10.2139/ssrn.3771955

Shaun Hargreaves Heap

affiliation not provided to SSRN

Mehmet Ismail (Contact Author)

King’s College London - Department of Political Economy ( email )

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