The Marketplace Report: Nobel Economics Prize

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Thomas Schelling and Robert Aumann have won the 2005 Nobel Prize in Economics. Alex Chadwick talks to Tess Vigeland of Marketplace about the two men, who were recognized for their contributions to game-theory analysis.

ALEX CHADWICK, host:

Back now with DAY TO DAY. I'm Alex Chadwick.

The Nobel Memorial Prize in Economic Science is awarded today to two men, an American and an Israeli-American, for their work on game theory. The prize is worth $1.3 million, which they will split. MARKETPLACE's Tess Vigeland is here from Los Angeles.

Tess, explain game theory for me, would you?

TESS VIGELAND ("Marketplace"): Oh, no problem, Alex. We'll give it a shot. For anyone who's seen the movie "A Beautiful Mind," the hero of that story, Princeton's John Nash, won his Nobel Prize for game theory as well. That was 11 years ago. Applied to economics and business, for example, game theory is involved in, say, decisions on how to place advertisements; where to open a store; how to respond to a competitor. Another example near and dear to us, actually, public radio listeners engage in a form of game theory. Whether you donate or not comes down to an issue of what they call a social dilemma. Economists are generally surprised that people give to public radio when they could simply listen for free, which of course we don't want them to do. But there are aspects of game theory involved there. And it could also apply to everything from actual games like chess to international relations and nuclear weapons conflicts and trade wars.

CHADWICK: If these guys are playing game theory in the public radio realm, we're all for them winning this award.

VIGELAND: Absolutely.

CHADWICK: Well, OK, who are these two winners? Let's start with Thomas Schelling.

VIGELAND: Thomas Schelling teaches at the University of Maryland. He's 84. And I called another game theorist to find out kind of what the specific contributions were of these two gentlemen. John Miller teaches at Carnegie Mellon, and he says that Schelling's applications have been interesting uses of game theory in the real world.

Professor JOHN MILLER (Carnegie Mellon University): Everything from global security and arms races to segregation in neighborhoods. Schelling you could think of as an applied game theorist who took ideas and the framework of game theory and applied them to real-world affairs.

VIGELAND: And Schelling has done a lot of work trying to explain how game theory was applied during the Cold War, that the bombing of Hiroshima became one of the reasons that nuclear weapons were never used despite what was a massive arms race point.

CHADWICK: All right, Tess. And the other winner, Robert Aumann.

VIGELAND: Miller says that Aumann's contribution is much more at the theoretical level.

Prof. MILLER: A key problem with game theory is, given a game, what should people do? So that's really a question of strategy. How should I play a game? Aumann did some beautiful work on common knowledge. And the problem is if I think that you think that I think that you think--you know, where does that reasoning end, and what does that imply for how people rationally would play a game?

VIGELAND: And those questions could apply to everything from trade wars to labor union negotiations.

And we'll have much more on all this later today on "Marketplace."

CHADWICK: Thanks, Tess.

Tess Vigeland of public radio's daily business show "Marketplace" from American Public Media.

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