Nobel rewards "game theory"

An American and an Israeli yesterday were awarded the Nobel Memorial Prize in Economic Sciences for fostering the understanding of conflict and cooperation as applied to a range of subjects from nuclear arms races to trade and price wars.

Thomas Schelling, 84, an emeritus professor at the University of Maryland and Harvard University, and Robert Aumann, 75, an emeritus professor at Hebrew University of Jerusalem, used "game theory" as way to explain social, political and business interactions.

Working separately, the pair have "enhanced our understanding of conflict and cooperation through game-theory analysis," the Royal Swedish Academy of Sciences said in its prize citation.

Game theory is a branch of mathematics and social science that tries to explain actions and decisions in terms of choices that players might make. It sometimes can show why a counterintuitive choice might be better.

Schelling, a political economist, and Aumann, a mathematician, took different approaches in trying to explain why sometimes it was in the best long-term interest of players to foster cooperation rather than confrontation.

For example, two countries that trade together could find themselves in conflict over a specific product. Traditional power politics would argue that one country should force the other to bow to its will.

But Schelling, in his 1960 book "The Strategy of Conflict," explained that a party could have long-term success by giving up some short-term advantages, even if that meant worsening its own options. By making concessions, the stronger party could build trust with the other party and that long-term relationship could be more beneficial to both.

The work has had an effect on issues such as nuclear proliferation and building so-called confidence steps in the hope of resolving conflict in the Middle East.

Schelling said yesterday that his greatest influence had been in nuclear deterrence. His use of game theory explains why no nation would use a nuclear weapon because retribution would be assured.

Even today, deterrence probably would prevent nations such as Iran or North Korea from using nuclear weapons, he said.

As a mathematician, Aumann's contribution was to put the power of numerical analysis behind social insights. He showed that peaceful cooperation is often an equilibrium solution in a game played many times.

Aumann's use of the theory of "repeated games" has become a common framework for analyzing cooperation.