‘Game theorists’ get Nobel Economics prize
Foreign Desk Report

STOCKHOLM (Sweden)—Israeli-American Robert J. Aumann and American Thomas C. Schelling won the 2005 Nobel Memorial Prize in Economic Sciences on Monday for their work on game theories that help explain political and economic conflicts from arms races to price wars. “Why do some groups of individuals, organizations and countries succeed in promoting cooperation while others suffer from conflict?” the Royal Swedish Academy of Sciences said. Schelling, 75, is a professor at the University of Maryland’s department of economics and a professor emeritus at Harvard. Aumann, 84, is a professor at the Center for Rationality at the Hebrew University of Jerusalem. It was the sixth straight year that Americans have won the prize, or had a share in it. Aumann (OW-man) and Schelling were cited for using game-theory analysis to “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”.
“The repeated-games approach clarifies the raison d’etre of many institutions, ranging from merchant guilds and organized crime to wage negotiations and international trade agreements,” the citations said. “I feel great,” Aumann, reached by telephone in Israel, told newsmen. He told the prize committee, “This was a total surprise. I’m totally overwhelmed”. Reached by the reporters at his home in Bethesda, Md., Schelling said he knew his co-winner, but had never worked with him. “They (the Nobel committee) linked us together because he is a producer of game theory and I am a user of game theory,” he said. “I use game theory to help myself understand conflict situations and opportunities”. The academy, in its citation, lauded Schelling for showing “that a party can strengthen its position by overtly worsening its own options, that the capability to retaliate can be more useful than the ability to resist an attack, and that uncertain retaliation is more credible and more efficient than certain retaliation”. Those insights, the academy said, “have proven to be of great relevance for conflict resolution and efforts to avoid war.” Aumann was cited for his work in looking at how real-world situations can affect the theory. “In many real-world situations, cooperation may be easier to sustain in a long-term relationship than in a single encounter. Analyses of short-run games are, thus, often too restrictive,” the academy said. “Robert Aumann was the first to conduct a full-fledged formal analysis of so-called infinitely repeated games. His research identified exactly what outcomes can be upheld over time in long-run relations”.