Optimal Solution Concept

Do you remember Adam Smith? He is considered the father of modern economics. His theories were used for more than 150 years by governments, industries, banks etc. One of his famous laws states that people act in their own self-interest. He postulated that in a free market, you will have to compete to survive. He explained how rational self-interest and competition can lead to economic prosperity. Is this always true? Can you think of a case where this theory might not lead us to the most optimal solution? This is not a philosophical discussion, so I actually want you take a minute and think. If people are competing against each other, then what strategy would lead to the most optimal overall result.   Continue reading