Micro Learn – Economics: Zero Sum Game and Pareto Optimal
Imagine you and a friend were given a cake to divide between yourselves.
In your mind a 50% share seems fair, and it is. Lets call than 50 units.
Me 50 , friend 50
But what if you were greedy and wanted more?
Me 60, friend 40
My gain 10, friend gain -10.
sum of gains (10 -10) = 0
All the gains would be considered losses to your friend, and vice versa.
No matter which way the cake is divided no player can get more without the other player(s) losing.
This is is what a zero sum game is; all of the losses and gains to players in the game sum to zero.
Some games are zero sum and some are not.
If the cake grew or shrunk, it would not be a zero sum game.
A situation where no player can gain without the other losing is called Pareto optimal.
Pareto optimal can apply to a single payer determining a position in a game or situation.
A good example of Pareto optimal seating position
From The Big Bang theory.
Congratulations you have just learned two important concepts in economics. Not so hard was it?