This lecture explains Pareto efficiency, the primary way we compare the relative quality of outcomes in game theory.

**Takeaway Points**

- An outcome is Pareto efficient if there is no other outcome that increases at least one player’s payoff without decreasing anyone else’s.
- Likewise, an outcome is Pareto inefficient if another outcome increases at least one player’s payoff without decreasing anyone else’s.
- Note that Pareto efficiency permits indifferences. For example, an outcome that pays <12, 2> Pareto dominates an outcome that pays <9, 2>.
- Pareto efficiency is a very weak form of efficiency because it does not make comparisons
*between*players. However, the fact that expected utilities are identical across positive affine transformations implies that interpersonal comparisons have no meaning.