The pareto efficiency frontier

Explain the pareto efficiency frontier and what this has to do with negotiations. Also, how is the related to the prisoners dilemma? According to the article I sent you, what are the key strategies to communicate tough news? Does this relate to the pareto efficiency frontier? Why or why not?

Sample Solution

Research on automated negotiation agents has focused on a specific notion of value-creation known as Pareto efficiency. A negotiated solution is Pareto efficient if it is impossible to improve one party`s prospects without making the other`s worse. Pareto efficiency implies that resources are allocated in the most economically efficient manner, but does not imply equality or fairness. Let us consider two prisoners who are convicted for a certain crime. Due to some lack of evidence, the prisoners are sentenced to one year of imprisonment only. Now both the prisoners are spoken to in confidence and are offered to be set free if they betray each other. However, the person who gets betrayed now receives ten-year imprisonment which is a larger negative payoff. Also, if both the prisoners betray each other, then both are sentenced to five-year imprisonment each.

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