American papers like the Chicago Sun-Times took a mostly benign view of the results of the game theory work behind the Nobel Prizes in Economic Sciences for Thomas Schelling and Robert Aumann that were announced Monday.[1]  --  Schelling's "use of game theory explains why no nation would use a nuclear weapon because retribution would be assured," wrote Michael Muskal and Ken Ellingwood.  --  But the London Financial Times had a less rosy perspective: "[Schelling's] 1960 book, The Strategy of Conflict, highlighted the importance of precommitment, brinkmanship, and credible threats as strategic weapons in a tense stand-off between two parties. . . . Credible threats could also be made with brinkmanship, gradually increasing the probability of a conflict, Mr. Schelling observed . . ."[2]  --  The New York Times noted that "[a]n article that Mr. Schelling wrote prompted the director Stanley Kubrick to make the movie 'Dr. Strangelove,' consulting with Mr. Schelling during the filming."[3]  --  "The winners were a surprise," said the Times.  "Neither man's name figured in the speculation concerning who this year's winners might be, and game theory has not been recognized in the Nobel awards since 1994."  --  But it did not quote Mr. Schelling's interesting, if curious, observation about Iran, currently in the sights of the Bush administration for its allegedly aggressive alleged pursuit of nuclear weapons:  "Iran's main use of nuclear weapons is [sic] to hold them in reserve or as a deterrent to make sure they do not get into a war with the United States or Russia."[1] ...

1.

TWO GAME THEORISTS WIN THE NOBEL PRIZE FOR ECONOMICS
By Michael Muskal and Ken Ellingwood

** Thomas Schelling's and Robert Aumann's work sheds light on conflict and cooperation. **

Chicago Sun-Times
October 11, 2005

http://www.suntimes.com/output/news/cst-nws-nobel11.html

An American and an American Israeli were awarded the Nobel Memorial Prize in Economic Sciences on Monday for fostering the understanding of conflict and cooperation -- in matters such as nuclear arms races, trade battles, or price wars.

Thomas C. Schelling, 84, an emeritus professor at the University of Maryland and Harvard University, and Robert J. Aumann, 75, an emeritus professor at Hebrew University of Jerusalem, used "game theory" as a 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 may make. It can sometimes 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 ethnic and social divisions in the Middle East. It also helps explain why housing segregation continues to be a problem, even in areas where residents say they have no extreme prejudice toward another group.

Schelling, who was born in Oakland and worked for the U.S. government on the Marshall Plan to rebuild Europe after World War II, said at a news conference Monday 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 would probably prevent nations such as Iran or North Korea from using nuclear weapons, he said.

"Iran's main use of nuclear weapons is to hold them in reserve or as a deterrent to make sure they do not get into a war with the United States or Russia," Schelling 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. His use of the theory of "repeated games" has become a common framework for analyzing cooperation.

"The theory of repeated games enhances our understanding of the prerequisites for cooperation: why it is more difficult when there are many participants, when they interact infrequently, when interaction is likely to be broken off, when the time horizon is short, or when others' actions cannot be clearly observed," the academy said.

"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," it said.

Aumann's work has been used to explain issues including how competing companies can cooperate to maintain high prices and how countries can enter into environmental agreements, even if some domestic industries are hurt.

He is a philosophical heir of the Frankfurt School tradition of focusing on the role of knowledge and information in explaining social situations. Aumann studied how what one player knows about the other can influence the decision-making process.

In a primitive example, two players are betting on poker. One knows the other is inclined to bluff with certain low cards, but not with others. He then formulates his betting strategy accordingly.

Born in Frankfurt, Germany, and now a dual U.S. and Israeli citizen, Aumann is also a member of Hebrew University of Jerusalem's interdisciplinary Center for the Study of Rationality. He is an observant Jew who said he once considered studying to become a Talmudic scholar. His family fled Nazi Germany in 1938 and settled in the United States.

During a news conference Monday in Jerusalem, Aumann said conflict in the Middle East was perfect fodder for game-theory analysis of continuing conflict.

"That's what it is. It's an ongoing conflict," said Aumann, with a lively demeanor and a white beard that reaches to his breast pocket. "It's been going on for at least 80 years -- more than 80 years. As far as I can see, it's going to go on for at least another 80 years."

Americans have now won the economics prize for six consecutive years. The prize, worth about $1.3 million, is the only one of the Nobel awards not established by Swedish industrialist Alfred Nobel. It was created in 1968 by the Swedish central bank but is awarded through the Royal Swedish Academy of Sciences, as are the other Nobel Prizes.

--Muskal reported from Los Angeles and Ellingwood from Jerusalem.

A look at the laureates

Robert J. Aumann

Born: June 8, 1930, in Frankfurt, Germany

Home: Israel

Position: Professor of mathematics, Hebrew University of Jerusalem

Education: Bachelor's degree, City College of New York, 1950; doctorate, MIT, 1955

Key works: Values of Non-Atomic Games, 1974; Repeated Games with Incomplete Information, 1995

Thomas C. Schelling

Born: April 14, 1921, in Oakland

Home: Bethesda, Md.

Position: Emeritus professor, University of Maryland and Harvard University

Education: Bachelor's degree, UC Berkeley, 1943; doctorate, Harvard, 1951

Key works: The Strategy of Conflict, 1960; Arms and Influence, 1966

--Compiled by Times research librarian Scott Wilson 2.

NOBEL PRIZE FOR 'GAME THEORY' THINKERS
By Chris Giles

Financial Times (UK)
October 11, 2005

http://news.ft.com/cms/s/069a9e94-39f3-11da-806e-00000e2511c8.html

The Nobel prize for economics was awarded yesterday to Thomas Schelling and Robert Aumann for their individual contributions to the understanding of conflict and co-operation.

Both were pioneers in "game theory," a branch of economics that now dominates the subject and is extremely important in other disciplines such as political theory, sociology and even biology. They will share the $1.3m (£740,000, 1m euros) prize.

Born in 1921, Mr. Schelling, a professor at the University of Maryland, developed a theory of conflict situations that strongly influenced U.S. attitudes towards nuclear deterrence in the cold war period of the 1950s and 1960s.

His 1960 book, The Strategy of Conflict, highlighted the importance of precommitment, brinkmanship, and credible threats as strategic weapons in a tense stand-off between two parties. By limiting your own options, for example, you can make it clear to opponents how you will respond to their actions, whatever they do, thereby increasing the chances the other side will back down. Credible threats could also be made with brinkmanship, gradually increasing the probability of a conflict, Mr. Schelling observed, adding that children understood brinkmanship perfectly.

Applied to the nuclear arms race, the theories gave the U.S. its strategies to deal with the fundamental problem of how to get some use from weapons so terrible that their use could not really be contemplated.

Outside the geo-political sphere, Mr. Schelling also found that people tended to co-operate more readily than a group of them behaving purely rationally would.

Mr. Aumann's contribution to strategic thinking around the subject of conflict and co-operation came in using logic and mathematics to understand the options available to people when they face the same opponents or competitors day-in, day-out.

When strategic situations are repeated very large numbers of times, even when individuals have immediate conflicts of interest, the opportunity for building co-operation increases because the individuals have to deal with the other side again and again in the future.

The analysis of "repeated games," which Mr. Aumann started, is now a mainstream part of all social sciences and applied to issues as diverse as political conflicts, irrigation systems, international treaties and collusion among companies.

Game theory was also the subject of the Nobel prize for economics sciences in 1994, when it was won by John Harsanyi, John Nash, and Reinhard Selten.

Paul Klemperer of Nuffield College, Oxford University, said the two economists came from different ends of the discipline, with Mr. Schelling brilliantly intuitive and Mr. Aumann one of the world's cleverest and most abstract economic thinkers. "It was an extremely natural choice," he said. "The whole methodology [of game theory] has been so dominant in economics."

3.

Business

AMERICAN AND ISRAELI SHARE NOBEL PRIZE IN ECONOMICS
By Louis Uchitelle

New York Times
October 11, 2005

http://www.nytimes.com/2005/10/11/business/11nobel.html

Robert J. Aumann and Thomas C. Schelling won the Nobel Memorial Prize in Economic Science yesterday for their work in game theory, which explains the choices that competitors make in situations that require strategic thinking.

Their work has helped to illuminate the dynamics in labor negotiations, business transactions, and arms negotiations, among other situations. An article that Mr. Schelling wrote prompted the director Stanley Kubrick to make the movie "Dr. Strangelove," consulting with Mr. Schelling during the filming.

The Royal Swedish Academy of Science announced in Stockholm that Mr. Aumann, 75, an Israeli who teaches at the Hebrew University of Jerusalem, and Mr. Schelling, 84, an American who is a professor emeritus at the University of Maryland, had been honored "for having enhanced our understanding of conflict and cooperation through game-theory analysis."

The two men will share a $1.3 million prize.

The winners were a surprise. Neither man's name figured in the speculation concerning who this year's winners might be, and game theory has not been recognized in the Nobel awards since 1994, when three scholars, John F. Nash Jr., John C. Harsanyi and Reinhard Selten, shared the prize. The Nobel judges said that the work of Mr. Schelling and Mr. Aumann "was essential in developing noncooperative game theory further and bringing it to bear on major questions in the social sciences."

Game theory departs from mainstream economics, which assumes that people behave rationally and act independently of one another. Game theorists assume that in a given situation people are affected by what other people do or what they imagine others will do, particularly when their goals are conflicting.

From a game theorist's point of view, for example, the Oslo accords negotiated between the Palestinians and the Israelis were a success in part because the negotiations proceeded in small steps. Each side made small concessions and the other reciprocated, but neither would make a big concession. In the case of a big concession, there could be considerable damage if the other side did not reciprocate.

"The Oslo peace process was this process of doing little things over a period of time," said Avinash Dixit, a Princeton University economist.

Mr. Aumann and Mr. Schelling worked in different areas of game theory, with Mr. Schelling, an economist, building a reputation as a big-picture thinker and Mr. Aumann, a mathematician, becoming known as a master technician who developed formal techniques for analyzing real-world behavior.

"Robert Aumann is a genuine game theorist," Mr. Schelling said in a phone interview, "while I am just a user of game theory when I find it helpful."

Because the Nobel prize committee had a wrong telephone number for Mr. Schelling's home in Bethesda, he did not receive the news until moments before it was announced at 7 a.m. yesterday.

At a news conference in Jerusalem, Mr. Aumann said that he was also surprised, and moved.

"This prize is not just for me," he said. "It is for the entire school of thought that we have developed here in Israel, turning Israel into the leading authority in this field."

Mr. Aumann, who was born in Frankfurt and fled with his family to New York in 1938, was educated at City College of New York and the Massachusetts Institute of Technology, where he received his doctorate in 1955. Almost immediately, he emigrated to Israel, joining Hebrew University, where he has spent his entire career. He and his wife, Esther, who died seven years ago, had five children, one of whom, Shlomo, was killed in Lebanon in 1982 while serving in the Israeli army.

Mr. Schelling's professional life was more nomadic. Born in Oakland, Calif., he was educated at the University of California, Berkeley, and then mixed graduate school and diplomacy. While he was still working on his doctoral thesis for Harvard in the late 1940's and early 1950's, he worked as a government economist -- in Washington and Europe -- helping to carry out the Marshall Plan and to negotiate international agreements. He joined the Harvard faculty in 1958 and shifted to the University of Maryland in 1990. He and his wife, Alice, have six children.

His best-known work, "The Strategy of Conflict," published in 1960, reflected his government work. It argued that nations, companies or individuals bargain in the context of conflicting and common interests and they bargain most effectively when they take these into account. "It was my effort to cope with practical problems like arms control through a style of analysis that could be called game theory," he said.

A magazine article he wrote in 1960 brought him attention. The theme was accidental war, and Mr. Schelling reviewed three fictional accounts of nuclear disaster, one of them the novel Red Alert by Peter George. The article caught Mr. Kubrick's eye and he turned Red Alert into "Dr. Strangelove."

In the movie, neither the Soviet premier nor the American president wanted a nuclear conflagration, but that happened because neither had full knowledge of the other's situation and intentions. The Soviets, for example, had an automated nuclear device, unbeknown to the Americans. "One obvious point in the Strangelove movie was that the Soviet doomsday thing was not a deterrent," Mr. Schelling said, "when the other side did not know in advance that it existed." That was the game theory insight.

"By the time the movie came out, there was a hot line in place between Moscow and Washington," Mr. Schelling added. "When Red Alert was published, there was no hot line."