STOCKHOLM (Reuters) - Israel's Robert Aumann and American Thomas Schelling won the 2005 Nobel economics prize on Monday for their "game-theory analysis", which can help resolve conflicts in trade and business -- and even avoid war.
Their studies have found uses in "security and disarmament policies, price formation on markets, as well as economic and political negotiations", said the Royal Swedish Academy of Sciences awarding the 10 million crown prize.
official announcement
Let me tell you a little bit why I think this is a slap to Bush and the neocons.
Aumann, 75, was born in Germany but is an Israeli and U.S. citizen who teaches at the Hebrew University of Jerusalem. Schelling, 84, teaches at the University of Maryland.
"Game theory" is a science of strategy, which attempts to determine what actions different "players" -- be they trading partners, employers and unions or even crime syndicates -- should take to secure the best outcome for themselves.
Schelling has been applying it to global security and the arms race since the 1950s while Aumann has conducted analysis of "infinitely repeated games" to identify what outcomes can be maintained over time.
"Insights into these issues help explain economic conflicts such as price wars and trade wars, as well as why some communities are more successful than others in managing common-pool resources," said the Academy citation.
As someone who has written a (not widely read) Ph.D. dissertation entitled "The independence of a country: what game theory can tell us, and an application to Ukraine", this is a topic dear to my heart, and Thomas Schelling's works (especially The Strategy of Conflict) played a prominent role in my formative years, a decade or so ago.
I must admit that I had not heard about Robert Aumann; I tend to associate "infinitely repeated games" with Robert Axelrod's ground breaking Evolution of Cooperation which described "tit-for-tat" as the best long term strategy in conflict. So I'll write mostly about Schelling and I hope that others that know Aumann's work will chip in.
Writing this diary brings about a flood of memories as I go back into my dissertation and look for quotes. I mentioned Schelling on the first page of my dissertation, pointing out that for him, "game theory" really is a theory of strategic games, i.e. of games where your best outcome depends on the decisions of others, and it is really a theory of interdependent decisions. This makes me wonder if this Nobel prize isn't, once again, highly political and a slap to Bush and the neocons who have been strutting around on the world stage trying to impose America's will and values to the rest of the planet, by force if necessary, refusing to acknowledge the priorities, preferences and desires of others and persuaded that military force is a solution to everything.
Game theory, which examines how one should behave to maximise results with a given hand, shows that even a strong hand does not necessarily bring about your preferred outcome - it all depends on what the others do, and obtaining their cooperation willingly can lead to much better outcomes for you. This is a lesson this White House should learn if it's not too late...
As a final note, it is good to see the Nobel committee recognising authors which straddle various disciplines, like in 2002 (Kahneman - decision under uncertainty) and 2001 (Akerlof, Spence, Stiglitz - on assymetric information). Schelling has worked at the intersection between economics, geopolitics and strategic decision making and it's a great choice.