[greatzebu]

> A "Pareto optimal" solution is one which, given all the possibilities of action, produces the best outcome for both parties (with some negotiable surplus).

This isn't quite right. In a Pareto optimal solution, there's no way to improve things for one party without making them worse for another party, but there's no guarantee that the outcome is good for everyone. "I get everything, you get nothing" is a Pareto-optimal way of diving things up.

[AnthonyMouse]

That still isn't quite right. Pareto optimal better describes transitions than states. A state can be described as Pareto optimal only in the sense that there are no Pareto optimal transitions out of it. So for example, in prisoner's dilemma, all of the states are Pareto optimal because none of the moves are. No matter what anyone does, somebody will be worse off than the alternative.

As another example, "I get everything, you get nothing" isn't necessarily Pareto optimal because there could be something non-rivalrous that the person getting nothing could have without depriving the person getting everything of it.

[araftery]

Agreed. Seems like the author is looking for something more along the lines of "socially optimal." Also seems like he mixed up which outcome is Nash and which is socially optimal. (Deny, Deny) = (Defect, Defect) = Nash Eq. (Confess, Confess) = (Cooperate, Cooperate) = socially optimal.