Game Theory and Nobel Prize Winners
 

Nobel Prize for two gametheorists

STOCKHOLM, Oct 10: Robert J. Aumann, an Israeli-US citizen, and American Thomas C. Schelling on Monday won the 2005 Nobel Economics Prize for using game theory to explain conflict resolution, the Nobel jury said.

Applying game theory — interactive decision scenarios — the laureates focused on why some people and countries manage to cooperate, while others suffer from conflict.

Their work goes beyond the frontiers of traditional economics into psychology, sociology and strategic studies and has helped analyze trade disputes, organized crime, political decisions and wage negotiations, as well as outright shooting wars.

In economics and business, it clarified why initially competing firms would eventually collude to fix prices or why farmers would share pastures or irrigation systems.

But it also sheds light on everyday phenomena like the audience’s choice of seats at a concert or societal issues like racial and sexual discrimination.

After Schelling and Aumann, seemingly irrational behaviour could suddenly be explained.

“Their work has transformed the social sciences far beyond the boundaries of economics,” said the jury, praising Schelling’s ability to introduce original ideas with a minimum of mathematical tools.

Schelling, now 84 and professor emeritus at the University of Maryland, produced his main work during the Cold War which pitted the United States against the Soviet Union, using game theory to explain the era’s most vital issues, global security and the arms race.

Having worked on the Marshall Plan — the US postwar aid programme for battle-ruined Europe — and at the White House in the 1950s, Schelling was well placed to examine the rationale behind the superpowers’ nuclear standoff.

The Cold War, when the world’s survival could depend on accurately predicting the opponent’s next move, was a fertile ground for game theorists.

Schelling showed that the ability to retaliate can be more useful than the ability to resist an attack, and that it may be good to keep your enemy in the dark over how your retaliation will look.

Limiting one’s own options — burning one’s bridges — can paradoxically also help get the better of an opponent, Schelling claimed.

His 1960 seminal work, The Strategy of Conflict, became a classic and has influenced generations of strategic thinkers, the jury said.

Building on Schelling’s original ideas, Aumann then applied the tools of mathematical analysis to highlight the alternatives available to one’s own country and the opponent in times of conflict.

Aumann, who is 75 and worked at the Center for Rationality at Jerusalem’s Hebrew University, went on to show that the choice for cooperation rather than war is more easily achieved in long-term relationships rather than single encounters.