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I was reading the wikipedia page for
Amartya Sen yesterday when i came across the
"The Liberal Paradox". It basically states that individual freedom does not always lead to a Pareto optimal solution . For example:
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Suppose Alice and Bob have to decide whether to go to the cinema to see a chick flick, and that each has the liberty to decide whether to go themselves. If the personal preferences are based on Alice first wanting to be with Bob, then thinking it is a good film, and on Bob first wanting Alice to see it but then not wanting to go himself, then the personal preference orders might be:
* Alice wants: both to go > neither to go > Alice to go > Bob to go
* Bob wants: Alice to go > both to go > neither to go > Bob to go
There are two Pareto efficient solutions: either Alice goes alone or they both go. Clearly Bob will not go on his own: he would not set off alone, but if he did then Alice would follow, and Alice's personal liberty means the joint preference must have both to go > Bob to go. However, since Alice also has personal liberty if Bob does not go, the joint preference must have neither to go > Alice to go. But Bob has personal liberty too, so the joint preference must have Alice to go > both to go and neither to go > Bob to go. Combining these gives
* Joint preference: neither to go > Alice to go > both to go > Bob to go
and in particular neither to go > both to go. So the result of these individual preferences and personal liberty is that neither go to see the film.
But this is Pareto inefficient given that Alice and Bob each think both to go > neither to go.
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I'm curious what the libertarian/Austrian response would be to this. I have a vague feeling that some of the assumptions of the example or it's wider applicability to the marketplace is flawed, but i'm not versed enough in economics to solidly back up my suspicions.
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I suspect it has something to do with there being no such this as "joint preference."
Also, the example is patently ridiculous, since Alice and Bob could go through the same exact "logic", divine that it is "inefficient", and just choose to go to the damn movies.