Monday, October 10, 2005

Game Theorists Win Nobel for Economics

NYT / October 10, 2005
Game Theorists Win Nobel for Economics
An American and an Israeli who worked independently of one another for decades were awarded the 2005 Nobel in economic science today for research on game theory that changed the way conflicts as diverse as trade wars and arms races are analyzed.
The $1.3 million Nobel Memorial Prize in Economic Science went to Thomas Schelling of the University of Maryland and Harvard and Robert Aumann of the Hebrew University of Jerusalem for writings published almost five decades ago that laid the analytical groundwork for the study of conflict and cooperation in the social sciences today, said the Royal Swedish Academy of Sciences, which administers the prize.
"Their work has transformed the social sciences far beyond the boundaries of economics," the prize committee said in announcing the winners today. "Current economic analysis of conflict and cooperation builds almost uniformly on the foundations laid by Aumann and Schelling."
"Game theory" is a mathematical method of analyzing the strategies that different "players" - be they governments, business partners or criminals - choose to achieve the best possible outcome for themselves in a given interaction.
Dr. Schelling, 84, a professor emeritus of economics at both the University of Maryland and Harvard, developed his vision of game theory in the early years of the cold war against the backdrop of the nuclear arms race between the United States and the Soviet Union.
In his influential book, "The Strategy of Conflict," first published in 1960, Dr. Schelling showed, for example, that a party could strengthen its bargaining position if it worsened its own options and that uncertain retaliation was more credible than actual retaliation. He used game theory to make the case that the credible threat of atomic weapons created by the 1945 bombing of Hiroshima was a key factor in ensuring that neither side in the cold war made use of their vast nuclear arsenals in the decades after.
"These insights have proven to be of great relevance for conflict resolution and efforts to avoid war," the academy said.
If Dr. Schelling's work has been widely recognized for establishing game theory as a major tool in the social sciences, Dr. Aumann's main contribution lies in pushing the mathematical framework of game theory forward, the academy said.
A mathematician at the Hebrew University of Jerusalem, Dr. Aumann, 75, was the first to develop a full mathematical analysis of so-called infinitely repeated games, in 1959, establishing what outcomes are sustainable over time in long-term social relationships between negotiating partners. His work demonstrated why cooperation is easier to secure the longer a relationship lasts and the fewer parties are involved in the negotiations. It has most notably been used to explain the behavior of companies competing in a capitalist marketplace, for example by demonstrating why, contrary to previous theories, price cartels can survive over time and how institutionalized cooperation is one response to conflict.
"Insights into these issues help explain economic conflicts such as price wars and trade wars," the prize committee's statement said. "The repeated-game approach clarifies the raison d'ĂȘtre of many institutions, ranging from merchant guilds and organized crime to wage negotiations and international trade agreements."
It is not the first time that a researcher on game theory has won a Nobel: John Nash, a Princeton mathematician who was the subject of a movie inspired by the 1998 book "A Beautiful Mind" by Sylvia Nasar, a former reporter for The New York Times, shared the economics award with two others in 1994.
Dr. Schelling began his career with work on the Marshall Plan, the American plan to rebuild a Europe devastated by World War II, spending two years Denmark and France and working in the White House before going to teach at Harvard in 1958. He is best known for his work on analyzing strategies in the context of global security, but also applied game theory to issues like environmental policy, racial segregation and organized crime.
Dr. Aumann was born in Frankfurt, Germany, before his family fled the Nazi regime in 1938 and settled in Israel. He holds American as well as Israeli citizenship. The two men, who will share the prize money, have never worked together.. "They linked us together because he is a producer of game theory and I am a user of game theory," Dr. Schelling told The Associated Press. "I use game theory to help myself understand conflict situations and opportunities."
It was the sixth year in a row that an American won or shared the economics prize.
Most recently, Edward C. Prescott, an Arizona State University professor, and the Norwegian Finn E. Kydland, an economics professor at the University of California, Santa Barbara, received the award last year for their work to show that innovative technologies and shocks, like a sharp increase in oil prices, play a much greater role in causing booms and busts than demand fluctuations.
The Nobel prize in economics is the only one of the Nobel awards that was not established in the will of the Swedish inventor and industrialist Alfred Nobel. Unlike the medicine, physics, chemistry, literature and peace prizes, which were first handed out in 1901, the economics award was established separately in 1968 by Sweden's central bank.
The academy's full announcement and biographies of the winners are available at


Post a Comment

<< Home