“The Game Theory of Economic-Political Conflict: From Arms Races to Price Wars” by Israeli-American economist Robert J. Aumann and American economist Thomas C. Schelling won the 2005 Nobel Prize in Economic Sciences.
This marks the sixth consecutive year that an American has received the Nobel Prize in Economics, or at least shared the honor.
Schelling, now 75 years old, is a professor in the Department of Economics at the University of Maryland and an honorary professor at Harvard University. Aumann, at 84, has previously worked at the Hebrew University of Jerusalem. The two scholars have utilized game theory to “explain various forms of economic conflict, such as price wars or trade disputes, as well as why some communities are more successful than others in managing common resources.”
This analytical approach has clarified the rationale behind many concepts, from trade guilds and organized crime to salary negotiations and international trade agreements.
Speaking from Israel over the phone, Professor Aumann expressed his complete surprise and overwhelming feeling regarding this victory. Interestingly, although they shared the Nobel Prize for the same subject, the two professors have never had the opportunity to collaborate directly.
“They (the Nobel Committee) associated us together because Professor Aumann originated game theory, while I applied it. I have used this theory to help interpret conflict situations and opportunities,” said Professor Schelling.
According to the Royal Swedish Academy of Sciences, Professor Schelling made significant contributions by demonstrating that “an organization or party can strengthen its position by publicly undermining its own choices, indicating that the ability to retaliate is often more useful than the capacity to resist attacks…” These insightful analyses have illuminated the close relationship between conflict resolution and efforts to avoid war.
Meanwhile, Professor Aumann’s work is highly regarded for illustrating how real-world situations can influence and affect theoretical constructs.
Game theory is often applied in political or military contexts to explain conflicts between nations, but Aumann has proven its applicability to the business world as well. “Understanding game theory will help us interpret economic conflicts such as price competition or trade wars,” stated Jorgen Weibull, Chairman of the Nobel Committee.
Professor Aumann was born in Frankfurt, Germany, but holds citizenship in both the United States and Israel. He is not the first Israeli to win the Nobel Prize in Economics; Daniel Kahneman, who also holds dual American-Israeli citizenship, shared the award in 2002 with another American author.
Last year’s Nobel Prize in Economics was awarded to Professor Edward C. Prescott from Arizona State University and Norwegian economist Finn E. Kydland from the University of California for their research on the effects of government policies on the global economy and why supply shocks (such as rising oil prices) negatively impact business cycles.
The Nobel Prize in Economics, worth $1.3 million, is the only category not included in Alfred Nobel’s will. Other categories such as Medicine, Physics, Chemistry, Literature, and Peace were first awarded in 1901, while the Nobel Prize in Economics was established independently by the Central Bank of Sweden in 1968.
Châu Anh (According to AP)
