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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
“game theory,” which can help explain and resolve trade and
business conflicts, and even play a role in avoiding war.

The Royal Swedish Academy of Sciences gave 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 and attempts to
determine what actions different “players” — such as trading
partners, employers, unions or even organized crime groups —
should take to secure the best outcome for themselves.

Game theory work has won the Nobel before. John Nash, the
mathematician whose life was portrayed in 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.”

Schelling told Reuters by telephone from his home in
Maryland that he was glad to have his work recognized.

“I’m a student of cooperation and conflict, I’m not really
a game theorist…I would not try very hard to make the case
that what I do is economics,” he said.

GLOBAL SECURITY

Schelling, whose career began with work on the U.S.
Marshall Plan to help rebuild Europe after World War Two, has
applied game theory to global security and the Cold War arms
race.

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,
even as both sides of the Cold War amassed big nuclear
arsenals.

In a 1978 work, Schelling also used examples from everyday
life, such as the difficulty in trying to get ice-hockey
players to overcome their fear of being at a competitive
disadvantage and wear helmets, even though it would protect
their heads.

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.

He told a news conference in Jerusalem that game theory had
become a cornerstone of economics worldwide.

“This is a badge of honor for this branch of science, for
game theory,” he added.

The economics prize was not one of the original awards for
medicine, physics, chemistry, peace and literature set up in
the will of Swedish dynamite millionaire Alfred Nobel in 1895.

It was added to the list in 1968 in memory of Nobel by the
Swedish central bank.

(Additional reporting by Peter Starck, Simon Johnson and
Stephen Brown in Stockholm and Matt Spetalnick and Allyn
Fisher-Ilan in Jerusalem)




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