Israeli professor shares Nobel Prize in Economics for 2005

10 Oct 2005 The prize will be awarded jointly to Robert J. Aumann of the Hebrew University of Jerusalem, and to Thomas C. Schelling of the University of Maryland, „for having enhanced our understanding of conflict and cooperation through game-theory analysis.” The Royal Swedish Academy of Sciences has decided to award the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 2005, jointly to Robert J. Aumann of the Center for Rationality, Hebrew University of Jerusalem, and to Thomas C. Schelling of the Department of Economics and School of Public Policy, University of Maryland, College Park, MD, „for having enhanced our understanding of conflict and cooperation through game-theory analysis.” The prize will be awarded in December 2005. The work of two researchers, Robert J. Aumann and Thomas C. Schelling, was essential in developing non-cooperative game theory further and bringing it to bear on major questions in the social sciences. Approaching the subject from different angles – Aumann from mathematics and Schelling from economics – they both perceived that the game-theoretic perspective had the potential to reshape the analysis of human interaction. Schelling showed that many familiar social interactions could be viewed as non-cooperative games that involve both common and conflicting interests, and Aumann demonstrated that long-run social intercould be comprehensively analyzed using formal non-cooperative game theory. Especially over the last 25 years, game theory has become a universally accepted tool and language in economics and in many areas of the other social sciences. Current economic analysis of conflict and cooperation builds almost uniformly on the foundations laid by Aumann and Schelling. The theory of repeated games is now the common framework for analysis of long-run cooperation in the social sciences. Applications extend from competing firms which collude to maintain a high price level, and farmers who share pastures or irrigation systems, to countries which enter into environmental agreements or are involved in territorial disputes. Against the backdrop of the nuclear arms race in the late 1950s, Thomas Schelling’s book The Strategy of Conflict set forth his vision of game theory as a unifying framework for the social sciences. Schelling showed 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. These insights have proven to be of great relevance for conflict resolution and efforts to avoid war. Schelling’s work prompted new developments in game theory and accelerated its use and application throughout the social sciences. Notably, his analysis of strategic commitments has explained a wide range of phenomena, from the competitive strategies of firms to the delegation of political decision power. Robert Aumann has played an essential role in shaping game theory. He has promoted a unified view of the very wide domain of strategic interactions, encompassing many apparently disparate disciplines, such as economics, political science, biology, philosophy, computer science and statistics. Instead of using different constructs to deal with various specific issues – such as deterrence, perfect competition, oligopoly, taxation and voting – Aumann has developed general methodologies and investigated where these lead in each specific application. His research is characterized by an unusual combination of breadth and depth. Some contributions contain involved analysis while others are technically simple but conceptually profound. His fundamental works have both clarified the internal logic of game-theoretic reasoning and expanded game theory’s domain of applicability. Among Aumann’s many contributions, the study of long-term cooperation has arguably had the most profound impact on the social sciences. Robert (Yisrael) Aumann was born in Frankfurt, Germany in 1930 and received his PhD in mathematics (1955) from the Massachusetts Institute of Technology (MIT). He has taught mathematics at the Hebrew University of Jerusalem since 1956, currently as Professor Emeritus.