Pareto efficiency and the wingnut theorem

Many academics like the concept of Pareto optimality because it is the easiest moral criteria to agree that it is a good thing and that we should avoid any situation that isn’t Pareto optimal.  Pareto optimality is similar to the doctors’ creed, ‘first do no harm’ because a Pareto optimal situation is one in which any possible change that anyone could want would make someone else worse off.  Another way to say it is that a situation is Pareto optimal when there is no change that would make someone better off and would harm nobody.

If we are thinking about how to divide a pie up among three people and if all three people would enjoy eating all of it, then any division of the pie that doesn’t waste any pie is Pareto optimal.  If one person gets none and the other two get 1/2 pie each, that is Pareto optimal or if each person gets and equal share of the pie, that is also Pareto optimal.  The only division of the pie that is not Pareto optimal is if some of the pie is wasted such as if each person only gets 1/4 of the pie which leaves 1/4 of the pie uneaten.

There are infinite ways to divide the pie between people without wasting any, and since everyone will agree that it is dumb to waste pie, it is unlikely that you would ever see any possible division of the pie that would not be Pareto “optimal”.  But if almost every situation we see is “optimal” it seems silly to always call everything “optimal”.  “Optimal” implies that there is a best solution, but in the real world, people naturally select Pareto “optimal” outcomes because if there were an improvement that everyone could agree upon, they would have already done it.  The Pareto criterion, it is a very weak standard for judging any outcome because nearly every possible social situation that we see in the real world is Pareto “optimal”!

One problem with Pareto optimality as a moral criteria is what I call the wingnut theorem.  The wingnut theorem is the idea that as the number of people increases, the probability of finding a wingnut approaches certainty.  A wingnut is a nutty contrarian with extreme political views, and when there is a wingnut in a group, he will object to just about anything.  Even if all the rest of the group is unanimous, a wingnut will disagree by definition.  The increasing likelihood of wingnuts with bigger population means that the probability of finding a Pareto improvement (a change everyone agrees with) approaches zero as group size increases.  Wingnuts explain why Pareto efficiency is a useless criteria for evaluating situations for large groups.

This is because if we merely adopt the Pareto criterion for judging whether a situation is efficient, that means that anyone can veto any possible change.  If a situation is not Pareto optimal, then there will be unanimous agreement that a change should happen.  That makes the Pareto criterion the most universally acceptable moral rule (which academics like) but that is also why it is useless in large groups.

Because the Pareto criterion is useless for large groups, we need to use some other principle for making decisions. The three simplest ways to describe how societies make social decisions include:

  • dictatorship (One person has ultimate power and can make any change at any time.)
  • democracy (Dictatorship of the majority.  Changes only happen if more than 50% agree.)
  • consensus (Universal agreement is required to make a change, so it is hard to make changes.)

These three different kinds of decision making represent three points on a spectrum of infinite different possibilities from different everyone having equal political power (consensus) to extreme inequality of power at the top (dictatorship) and democracy right in the middle between the two extremes.  Of these three methods, democracy is the least objectionable for large groups because consensus sufferers from problems due to the wingnut theorem. Under consensus, every single person can be a dictator that has the power to block the will of the rest of the group from making changes.

Suppose a meteor is hurtling towards earth.  Everyone (except one wingnut) agrees that the meteor will destroy life on earth and that we should use our rockets to try to knock it off course and save the planet.  But under consensus, it only takes one wingnut who believes that the world is flat and meteors don’t exist to veto the will of the other 9 billion people on earth.  Consensus is bad because it gives every single person the power to be a dictator that can veto the will of the majority.  Consensus makes it very hard to make a change and increases the chance that group will decide to do nothing.

Consensus can work great in a small group where everyone cares for each other, but in larger groups it becomes more likely you will get a wingnut who is a misanthrope that hates people and wants to see everyone die.  That would make consensus terrible.  Large groups like nation-states cannot operate under consensus due to the wingnut problem, but some democratic governments require super-majorities which puts them on the spectrum closer to consensus and creates political gridlock.  Super-majority democracies are vulnerable to collapse if they cannot make decisions in the face of crisis.  The US government is the notable exception.  The US government has more veto points and super-majority requirements than any other democracy that has survived long term and the reasons for this is a matter of ongoing research in political science.

Government must be created using some arrangement creates rights and limits violence.  In fact, one universal definition for government is the institution that has a monopoly on the legitimate regulation and use of force in society.  Once a government has created rights, then there are other ways to make group decisions such as:

  • markets (Decision-making power is allocated by wealth.  This requires governments protect property rights in order to work.)
  • hierarchy
    • legal system (where officials interpret and enforce the rules.)
    • bureaucracy
Posted in Medianism

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