Pareto optimality has traditionally been a holy grail of welfare economics. This concept can be translated as, ‘first do no harm’* and but this wording is only rarely used in economics. The precautionary principle is a essentially the same concept when applied to a risky choice. The problem with Pareto optimality, and the do no harm principle is explained by 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 the rest of the group is unanimous. The increasing prevalence of wingnuts with increasing population means that large groups have a probability of finding any pareto efficient change that approaches zero. Wingnuts explain why Pareto efficiency is a useless criteria for large groups to make decisions.
That means that we need to use some other principle for making decisions. Arrow’s impossibility theorem argues that it is impossible to make these kinds of social judgements when some people win and other people lose, but every group of people makes group decisions despite the flawed theorem.
In practice there are three main ways that societies make these tough social decisions:
1. dictatorship (whoever has power just decides what is best for them)
2. democracy (dictatorship of the median)
3. mmutilitarianism (cost-benefit analysis is often used by courts and other non-democratic bureaucracies)
Of these three methods, democracy is the least objectionable. That is medianism. Some might object that a stricter standard like consensus is better, but a democracy will always approve any consensus decision, so consensus is similar to a dictatorship of the median except that any stricter standard creates a dictatorship of a minority to be able block changes that the majority wants.
*In latin: ‘Primum non nocere’