Inefficiency in game theory

In game theory, inefficiency typically refers to a situation where resources are not allocated in the most effective way possible, leading to a loss of potential value or utility. This can occur in various forms, such as: 1. **Pareto Inefficiency**: A situation is said to be Pareto inefficient if there exists at least one alternative allocation of resources that would make at least one player better off without making any other player worse off.

Braess's paradox is a concept in traffic flow and game theory that suggests that adding extra capacity to a network can sometimes lead to a decrease in overall efficiency. The paradox is named after the mathematician Dietrich Braess, who formulated it in 1968. In essence, Braess's paradox occurs when individual users of a network (such as drivers on a road network) behave in their own self-interest, and their decisions lead to a less efficient outcome for the entire system.

An externality is an economic concept that refers to a situation where the actions of individuals or businesses have an impact on third parties who are not directly involved in the transaction. Externalities can be either positive or negative. 1. **Negative Externality**: This occurs when the actions of an individual or company result in harmful effects on others. For example, pollution from a factory can adversely affect the health of people living nearby or the quality of natural resources.

The Price of Anarchy (PoA) is a concept from game theory and economics that quantifies the efficiency of equilibria in non-cooperative games. It measures how much worse the overall outcome of a system can be when individuals act in their own self-interest, compared to a scenario where they cooperate or are regulated to achieve a socially optimal outcome.

The Price of Anarchy (PoA) is a concept in game theory that measures the efficiency of equilibria in non-cooperative games, particularly in the context of congestion games. In congestion games, players compete for limited resources, and their shared interactions can lead to suboptimal outcomes for the group as a whole.

The Price of Stability (PoS) is a concept in game theory and algorithmic social choice that measures the efficiency of equilibria in games, particularly in the context of strategic interactions among multiple agents or players. Specifically, it quantifies how much the performance of the best Nash equilibrium (a stable state where no player has anything to gain by changing only their own strategy) deviates from the optimal outcome that could be achieved with cooperation.