Schelling wins Nobel Prize

[Michael Gizzi]

Just saw this on the New York Times:


October 10, 2005
 Game Theorists Win Nobel Prize for Economics  By THE ASSOCIATED PRESS

*Filed at 9:26 a.m. ET*

STOCKHOLM, Sweden (AP) -- 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 The
Associated Press. He told the prize committee, ''This was a total surprise.
I'm totally overwhelmed.''

Reached by the AP 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.''

Game theory, which is often used in a political or military context to
explain conflicts between countries, can also be applied to the business
world.

''The understanding of game theory helps explain economic conflicts like
price competition and commerce wars,'' said Jorgen Weibull, chairman of the
prize committee.

Aumann was born in Frankfurt, Germany, but holds U.S. and Israeli
citizenship. He is not the first Israeli to win the economics prize. In
2002, Daniel Kahneman, who also has U.S. and Israeli citizenship, shared the
award.

It was the sixth consecutive year that Americans have won the prize.

Last year's winners were Edward C. Prescott, an Arizona State University
professor, and Norwegian Finn E. Kydland, an economics professor at the
University of California, Santa Barbara, who won for their research on how
government policies affect economies around the world and why supply-side
shocks like high oil prices can dampen business cycles.

The economics prize, worth 10 million kronor ($1.3 million), is the only one
of the Nobel awards not established in the will of Swedish industrialist
Alfred Nobel, the inventor of dynamite. The medicine, physics, chemistry,
literature and peace prizes were first awarded in 1901, while the economics
prize was set up separately by the Swedish central bank in 1968.

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[Owen Densmore]

Boy, what great news!

     -- Owen

Owen Densmore
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