Who said "power exists where people think it exists" in season 2 of Game of Thrones? Cersei? Or is it known if she subscribes to that line of thinking?
In a conversation with Tyrion in Season 2, Varys says "Power resides where men believe it resides."
The following is a transcript of their conversation from Season 2 Episode 3 (What Is Dead May Never Die). It follows quite closely a similar conversation in the books (A Clash of Kings)
Varys: Power is a curious thing my lord. Are you fond of riddles?
Tyrion: Why? Am I about to hear one?
Varys: Three great men sit in a room, a king, a priest and a rich man. Between them stands a common sell-sword. Each great man bids the sell-sword kill the other two. Who lives, who dies?
Tyrion: Depends on the sell-sword.
Varys: Does it? He has neither crown nor gold nor favour with the gods.
Tyrion: He has a sword, the power of life and death.
Varys: But if it's swordsmen who rule, why do we pretend Kings hold all the power? When Ned Stark lost his head, who was truly responsible? Joffrey, the executioner, or something else?
Tyrion: I've decided I don't like riddles.
Varys: Power resides where men believe it resides. It's a trick, a shadow on the wall, and a very small man can cast a very large shadow.
As Blackwood posted, Varys said that as the answer to a riddle he asked Tyrion in S2E3.
In the books, they have a similar exchange:
“Oh, I think not,” Varys said, swirling the wine in his cup. “Power is a curious thing, my lord. Perchance you have considered the riddle I posed you that day in the inn?”
“It has crossed my mind a time or two,” Tyrion admitted. “The king, the priest, the rich man—who lives and who dies? Who will the swordsman obey? It’s a riddle without an answer, or rather, too many answers. All depends on the man with the sword.”
“And yet he is no one,” Varys said. “He has neither crown nor gold nor favor of the gods, only a piece of pointed steel.”
“That piece of steel is the power of life and death.”
“Just so… yet if it is the swordsmen who rule us in truth, why do we pretend our kings hold the power? Why should a strong man with a sword ever obey a child king like Joffrey, or a wine-sodden oaf like his father?”
“Because these child kings and drunken oafs can call other strong men, with other swords.”
“Then these other swordsmen have the true power. Or do they?” Varys smiled. “Some say knowledge is power. Some tell us that all power comes from the gods. Others say it derives from law. Yet that day on the steps of Baelor’s Sept, our godly High Septon and the lawful Queen Regent and your ever-so-knowledgeable servant were as powerless as any cobbler or cooper in the crowd. Who truly killed Eddard Stark, do you think? Joffrey, who gave the command? Ser Ilyn Payne, who swung the sword? Or… another?”
Tyrion cocked his head sideways. “Did you mean to answer your damned riddle, or only to make my head ache worse?”
Varys smiled. “Here, then. Power resides where men believe it resides. No more and no less.”
“So power is a mummer’s trick?”
“A shadow on the wall,” Varys murmured, “yet shadows can kill. And ofttimes a very small man can cast a very large shadow.”
Tyrion smiled. “Lord Varys, I am growing strangely fond of you. I may kill you yet, but I think I’d feel sad about it.”
“I will take that as high praise.”
The only major change in the show is that the answer is handed faster, and it seems that Tyrion gets kinda upset about the riddle, not intrigued.