Stockholm, Sweden – A pair of game theorists who defined chesslike strategies in politics and business that can be applied to arms races, price wars and warfare won the Nobel Memorial Prize in Economic Sciences on Monday.
Israeli-American Robert Aumann and U.S. citizen Thomas Schelling won the award for research on game theory, a branch of applied mathematics that uses models to study interactions between countries, businesses or people.
The theory, devised in 1944, is often used in a political or military context to explain conflicts between countries but has been of late used to map trends in the business world.
“The understanding of game theory helps explain economic conflicts like price competition and trade wars,” said Jorgen Weibull, chairman of the prize committee. “I think the main impact is on economics, but it also applies to other social sciences.”
Aumann, 75, and Schelling, 84, who know each other but have never worked together, were cited by the Royal Swedish Academy of Sciences for helping 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 the pair’s work, which built on research by the 1994 winners of the same prize, could be applied to understand how merchant guilds, international trade treaties and even organized crime groups are formed and operate.
Schelling, who teaches at the University of Maryland, used game theory in his 1960 book “The Strategy of Conflict” to focus on how the U.S. and the Soviet Union maintained credible threats that were not likely to be used, given the threat of nuclear annihilation.
“I use game theory to help myself understand conflict situations and opportunities,” Schelling said.
The prize committee linked the two laureates “because he is a producer of game theory, and I am a user of game theory,” said Schelling, who worked with the U.S. Marshall Plan to rebuild Europe after World War II.
The economics prize, worth $1.3 million, is the only Nobel award not established in the will of Swedish industrialist Alfred Nobel, the inventor of dynamite.
The medicine, physics, chemistry, literature and peace prizes were first awarded in 1901. Sweden’s central bank set up the economics prize in 1968.
