Game theory economists share Nobel prize

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Despite his pessimism regarding Israel and the Palestinians, Aumann suggested science could give insight into a conflict that has ebbed and erupted since the early 20th century.

“I do hope that perhaps some game theory can be used and be part of this solution,” the white-bearded academic said in separate remarks by telephone to Nobel officials in Stockholm.

The German-born Aumann lost a son who was serving in the Israeli army during its 1982 invasion of Lebanon, aimed at crushing Palestinian guerrillas.

In the economic world, Aumann (pronounced OW-man) and Schelling’s work is used to prevent illegal cartels between rival companies, Lofgren said.

Two competitors can use game theory to agree on joint price structures that benefit both parties, thereby eliminating fair competition, he explained. But the theory also lets regulators pick up on signs of collusion and, ultimately, break up illegal cartels.

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Monday’s award also highlighted developments in game theory that were lauded with the 1994 economics prize to Americans John Harsanyi and John Nash and German Reinhard Selten. Nash was portrayed in the 2001 Academy Award-winning film “A Beautiful Mind,” starring Russell Crowe.

Lofgren said Aumann’s theories differed from Nash’s by introducing an infinite repetition of the same game so as to find the best solution in long-term relationships instead of in a single encounter.

The difference is illustrated in the so-called “prisoner’s dilemma,” one of game theory’s best-known situations in which two partners in crime are put in separate cells and given an ultimatum: If one implicates the other, he may go free while his partner faces a firing squad.

Facing that situation once, both prisoners are likely to talk, meaning both would be executed, Lofgren said. However, if they could repeat the situation an infinite number of times and add the results of each action, they would realize that the best option is for both to keep mum, he said.

That supposition formed the basis for a TV game show, “Friend or Foe?” that aired on the Game Show Network in the U.S.

Aumann is a professor at the Center for Rationality at the Hebrew University of Jerusalem. Another dual U.S.-Israeli citizen, Daniel Kahneman, won the economics prize in 2002.

This year’s award marked the sixth year running that Americans have won the prize.

Last year’s winners were Edward C. Prescott, an Arizona State University professor, and Norwegian Finn E. Kydland, an economics professor at the University of California, Santa Barbara, who won for their research on how government policies affect economies around the world and why supply-side shocks like high oil prices can dampen business cycles.

The economics prize, worth 10 million kronor ($1.3 million), is the only one of the Nobel awards 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, while the economics prize was set up by the Swedish central bank in 1968.

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