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US, Israeli “game theory” duo win economics Nobel

October 10, 2005

By Patrick Lannin

STOCKHOLM (Reuters) – An American and an Israeli won the
2005 Nobel prize for economics on Monday for their work on the
“game theory” analysis of strategic options, which can help
resolve conflicts in trade and business — and even avoid war.

The Royal Swedish Academy of Sciences awarded the 10
million crown prize to Thomas Schelling and Robert Aumann for
work that has found uses in “security and disarmament policies,
price formation on markets, as well as economic and political
negotiations.”

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 the 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.

It is not the first time game theory work has won the
Nobel. John Nash — the mathematician whose life was the
subject of the movie “A Beautiful Mind” — won the economics
prize with two others in 1994.

“I think game theory creates ideas that are important in
solving and approaching conflict in general,” Aumann told the
awards ceremony by telephone from Israel.

Asked whether it could help solve the Israeli-Palestinian
conflict, he said: “I do hope that perhaps some game theory can
be used and be part of this solution.”

GLOBAL SECURITY

Schelling has been applying game theory to global security
and the arms race since the 1950s.

In particular, he has tried to explain how a taboo around
nuclear weapons after the bombing of Hiroshima in 1945 itself
became a factor in deterring their use after World War Two.

The Academy also cited a 1978 work by Schelling, which
addresses different everyday phenomena such as “professional
ice-hockey players’ use of helmets, audiences choice of seats
in an auditorium and racial and sexual discrimination.”

Aumann was cited for his 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.

Aumann had not decided what to do with the prize money. “I
am totally overwhelmed. I had absolutely no idea,” he said.

(Additional reporting by Peter Starck, Simon Johnson and
Stephen Brown)




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