American, Israeli Win Nobel Economics Prize Israeli and U.S. citizen Robert J. Aumann and American Thomas C. Schelling win the 2005 Nobel Memorial Prize in Economic Sciences for their work on game theories that help explain economic conflicts, including trade and price wars.
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American, Israeli Win Nobel Economics Prize

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American, Israeli Win Nobel Economics Prize

American, Israeli Win Nobel Economics Prize

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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This year's Nobel Memorial Prize in economics goes to two game theorists. Thomas Schelling and Robert Aumann will share the award. They're both known for bringing abstract theoretical ideas into practical use.

NPR's Adam Davidson joins us now to help us get a practical understanding of what that means.

Good morning, Adam.

ADAM DAVIDSON reporting:

Good morning, Steve.

INSKEEP: OK, Thomas Schelling, that's a familiar name to a lot of people. Remind us who he is.

DAVIDSON: Well, people might remember him as an adviser to President John Kennedy. He's a man who took game theory--game theory applies math, economics, other social sciences to study how decisions are made. And he advised Kennedy during the Cold War. He developed a lot of pragmatic theories for how to deal with conflict, how to deal with war or business negotiations. He took a discipline that had been very theoretical, very abstract and made it useable.

INSKEEP: Study how decisions are made, you mean asking how does a president decide whether or not to launch a war or what factors come into play, that sort of thing?

DAVIDSON: Exactly. I'll give you an example. He has what some call the mother-in-law problem. If you are kidnapped, would you rather your mother negotiate with the kidnappers, assuming your mother loves you, or would you rather your mother-in-law, assuming your mother-in-law hates you? And applying his theory, you'd actually rather have your mother-in-law negotiate for you, because the kidnappers would know that she wouldn't give as much away. You're worth less to them.

INSKEEP: She wouldn't likely be bluffing when she said, `I don't care. I'll walk away from the table.'

DAVIDSON: Exactly.

INSKEEP: Now what about the man he'll share the award with, Robert Aumann?

DAVIDSON: Aumann, he grew up in New York but he's lived in Israel for a long time. He teaches at the Hebrew University in Jerusalem. I should note Schelling teaches at University of Maryland. Aumann is still more theoretical. You can really--a lay person can read Schelling's work and really enjoy them, particularly his classic, "The Strategy of Conflict." Aumann is much more dense, I have to say, much more theoretical. His work studies how conflicts change over time, so an example would be, you know, if you and I had a one off negotiation, it might be in both of our interests to lie, cheat and steal, but if we know that we're going to be negotiating with each other many times over the years, then we have more of an incentive to be moral, to do the right thing. And people have applied those ideas to international relations, to business negotiations, etc.

INSKEEP: Have they actually changed the world, these ideas?

DAVIDSON: Well, they do say that Schelling's did. I mean, Schelling's ideas--in a way you could say it's why is it good to be crazy or to act crazy or to make your opponent think you're crazy. And that was certainly a major part of strategy during the Cold War. It's also--people call him the Shun Tzu, the sort of military theoretician for the modern world, so it's also affected business negotiations and other things. I want to note they're going to be sharing a $1.3 million prize.

INSKEEP: And we'll find out how they apply that economically. Now, just very briefly, Adam, the choice of these two economists is a little bit different, isn't it, than some other choices that you've told us about in recent years.

DAVIDSON: Yeah. They've--for--a majority of winners have followed a particular school of economics. They've been aggressive, free market economists. Giving an award to these guys may indicate a theoretical change in how the Nobel Prize in Economics is going to be awarded.

INSKEEP: Adam, thanks very much.

DAVIDSON: Thank you.

INSKEEP: That's NPR's Adam Davidson. And again we'll repeat here, the Nobel Memorial Prize in economics was awarded today and two people will share the award of well over $1 million. One of them is Thomas Schelling and the other one is Robert Aumann.

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