Let’s consider a business deal where there are multiple parties negotiating the terms. In such a situation, it’s usually not possible for every single party to get everything it wants. They need to optimize their demands so that everyone comes out with something positive. Similar situations arise across many areas of engineering where we have to deal with many resources and we need to make a trade off based on cost, quality, speed, and so on. How do we model this problem and decide the optimal state of affairs? This is where the concept of Pareto Optimality comes into picture. Continue reading “What Is Pareto Optimality”

# Tag: Nash Equilibrium

# 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 “Optimal Solution Concept”