Game Theory Wins the Nobel Economics Prize

Thomas C. Schelling and Robert Aumann are co-winners of the 2005 Nobel Prize in Economics. The two worked independently to apply game theory to social and political problems. Robert Siegel speaks with Dr. Schelling, who teaches at the University of Maryland.

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ROBERT SIEGEL, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

The winners of the 2005 Nobel Prize in economics were announced today: Robert Aumann of Hebrew University of Jerusalem and Thomas Schelling of the University of Maryland. The two men did not work together, but they both contributed to the advancement of game theory as a system for understanding economic conflicts, and that is what the Royal Swedish Academy of Sciences has honored them for. Professor Schelling joins us from his office at College Park, Maryland.

Welcome to the program, and congratulations.

Professor THOMAS SCHELLING (Nobel Prize Winner): Thank you.

SIEGEL: How did your day begin?

Prof. SCHELLING: It's been a busy day.

SIEGEL: You got a phone call from Stockholm?

Prof. SCHELLING: About quarter of 7 my wife answered it, and she heard a Swedish accent, and she guessed what it was and gave me the telephone.

SIEGEL: For a listener who has absolutely no idea of what game theory is and is curious to have one, how would describe in a nutshell what you've done?

Prof. SCHELLING: Well, I don't really consider myself a game theorist. Robert Aumann, whose name you mentioned is a genuine game theorist. I consider myself a consumer of game theory. I use economic theory. I use game theory. I use statistical theory. I use international relations theory. I'm a social scientist who's interested in conflict cooperation and strategy, and that means theories of bargaining and negotiation and how to make threats credible, how to make promises believable, how to avoid breakdown of negotiation. And I've spent a lot of time thinking about things like nuclear deterrence and arms control and confidence-building measures in international relations and things of that sort.

SIEGEL: You have observed that perhaps the most important event of the 20th century didn't happen...

Prof. SCHELLING: That's right.

SIEGEL: ...the nuclear war that people in the '50s and '60s feared would erupt with the Soviet Union.

Prof. SCHELLING: That's right. That's the most amazing thing of the second half of that century. Nobody would have believed we could get to the year 2000 without nuclear weapons ever having been used anywhere on any scale for any purpose.

SIEGEL: Because the--I'll use the word casually--`players' understood the rules of the game or not?

Prof. SCHELLING: I don't think people understood at the outset. I think we spent--in this country, our government spent, I would say, close to 15 years learning to think about how to make deterrence work and then another decade trying to persuade the Soviets that maybe an anti-ABM treaty could make sense because it would reduce the likelihood of war. Fortunately, the Indians and the Pakistanis were very much involved in Western thinking and conferencing about the role of nuclear weapons, so that I think by the time they became nuclear weapon states, they had absorbed most of what I would call Western thinking about the problem of stabilizing mutual deterrence.

SIEGEL: I was just wondering if you could relate a story to us, before you go, which is about, as I understand it, a cross-country auto trip when you were a young man and when you were briefly separated from your friend, your traveling companion, and how that experience led to a concept with which you're greatly associated.

Prof. SCHELLING: Oh, yeah, I can tell you. We--there were three of us in my old Model A Ford in the summer of 1940 driving from San Diego to New Hampshire and back. And somewhere--I think Houston, Texas--one of the other two got out of the car to go get some peanut butter and crackers. And when he came back, I wasn't there because a policeman had made me move on. And I got caught up in all kinds of one-way streets, and it took us about 10 minutes to find each other. And one of the other guys said, `You know, this could happen anywhere. We'd better have a plan if we get separated in any city. Not knowing which city it may be, how do we find each other?' And one of the other guys said, `Let's not make a plan. Let's think about it all afternoon and compare notes tonight and see whether we meet--where we meet.' And we were camping out, so after dinner over a campfire we compared notes, and we all went to the same place, the general delivery window of the main post office.

SIEGEL: You mean without having agreed to that overtly, that was your intuition...

Prof. SCHELLING: That's right.

SIEGEL: ...of where each of you would go?

Prof. SCHELLING: Yeah. Each of us decided it has to be a place that any city has one of. It has to be something that every city has no more than one of. It has to be a place you can reach by public transportation, and it has to be a place that any policeman or fireman can tell you where it is. And then, in addition, we decided, among the unique things like a city hall or a main police station, the one that had any symbolic significance was that we had agreed with our mothers that we would stop in a few cities and look for mail at the general delivery window of the main post office. And that was our clue to which of these unique places we should go.

SIEGEL: So you could make very accurate judgments about one another just based on assumptions without any clear information of that?

Prof. SCHELLING: Yeah.

SIEGEL: And this then led to academic work, this experience?

Prof. SCHELLING: It did, it did, yeah. I may be better known for the results of that experience than anything else I ever did.

SIEGEL: Writing about focal points...

Prof. SCHELLING: Yeah.

SIEGEL: ...or Schelling focal points, I gather, more properly. Well, congratulations on today's prize, and thank you very much for talking with us today.

Prof. SCHELLING: Thank you. I enjoyed it.

SIEGEL: That's Dr. Thomas Schelling, co-winner of this year's Nobel Prize in economics. He is professor emeritus of economics and public policy at the University of Maryland.

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