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October 18, 2012

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Luis Enrique

"Pareto optimality isn't as great an ideal as economists think"

this is one of those points that make me wonder if my education in economics is some sort of freakish outlier

as far as I can recall, I was taught all along that Pareto optimality is a very weak concept of optimality, and really nothing to do with what we think of optimality in any every day sense of the word, nor anything to do with welfare optimality in a formal economics style either.

Of course Pareto optimality is of interest, because if a situation is not Pareto optimal then there are improvements to be made even without having to think about potentially more complex questions like distributional justice. This is worth knowing.

Obviously, very many terrible situations are Pareto optimal because, for example, you cannot make the exploited better off without making the exploiter worse off. This is a trivial point, and I would say an example of people's lamentable tendency to think that those stupid economists haven't realised something that should occur to anybody after about one minute's thought ... except that you seem to be saying here that economists regard Pareto optimality more highly than they ought.

Cosma Shalizi thinks so too:

http://masi.cscs.lsa.umich.edu/~crshalizi/weblog/942.html

Metatone

Luis - where did you get your education?

My impression is very much that it's a kind of outlier.

Certainly almost any mainstream economics dept. in the USA looks a lot like Shalizi's outline.

Metatone

My experience in the UK is that many UK academic general economists are much more nuanced about optimality. However the economists who colonise other fields (e.g. my field, health organisation, so I'm talking about health economists) tend to be utterly rabid in defining outcomes around Pareto optimality. Not sure why that is... but it's definitely noticeable.

Luis Enrique

I'm pretty sure that my very first micro lecturer told me that, this guy:
http://www.ems.bbk.ac.uk/faculty/wright/

Luis Enrique

Metatone,

well that's interesting ... I have a little experience with health economics, just one module on my Msc, and I can remember some work based on welfare maximization that had some discussion of the fact a social welfare function might care about distributional questions, if you see what I mean, but those questions were going to be set aside for purpose of analysis.

p.s. I just checked Wright's Birkbeck lecture slides online and found this:

But perfectly competitive framework provides the optimal outcome in the (limited) sense that it is “Pareto-Efficient”.

which is consistent with what I remember, long time ago now.

Alex

My experience is that intro economics will indeed tell you that Pareto optimality is actually not all that great, but then the rest of economics will constantly harp on it and wave it at its critics every five minutes. Similarly, intro economics usually tells you that the standard assumptions in the theory of the firm in perfect competition are hilariously unrealistic, but the rest of economics then ignores them as far as possible.

Alex

On another thread regarding the jungle economics paper, I pointed out that the Lange model result suggests that you can have a Pareto-optimal outcome in a planned economy. Perhaps any economic system is capable of arriving at a Pareto outcome?

Metatone

@Alex - isn't it a sort of definitional problem? By the time you've excluded anything that doesn't fit into the definition "economy" you've basically fulfilled Pareto?

Keith

I am not sure serbian conduct is explainable by economics but by Psychology. Behaving in a offensive anti social manner and being unable to admit it and apologise is a form of aggressive denial. No wonder certain areas of the world have constant wars.

Gavin

We certainly discussed how crap pareto optimality was in my undergraduate degree (graduated 2011) but it wasn't the sort of thing you needed to remember to pass an exam and I doubt most people gave it much thought.

dBonar

"optimal", "efficient", "rational" and "irrational" are problematic words. They are often used in specific jargon meanings (and not always the same technical meanings in all cases). Then the results are paraphrased into catchy titles and sound bites where the words have looser, colloquial meanings. When even the professionals are blurring the lines between the technical and colloquial meanings, how can people reading the commentary on the commentary be expected to keep it straight?

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