The Economic Nobel

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Thomas C. Schelling of the University of Maryland and Robert J. Aumann of Hebrew University have taken home the 2005 Nobel Memorial Prize in Economic Sciences. Working separately, they used game theory to explain how people and countries interact. Schelling's work formed part of the basis for the "mutually assured destruction" strategy at the heart of U.S. Cold War nuclear strategy. Explains the Wash Times:

Mr. Schelling's theories helped to shape Cold War policy, particularly the concept of "mutually assured destruction" in an exchange of nuclear weapons.

"My main source of optimism is that the Soviet Union faced some of its gravest challenges without ever resorting to nuclear weapons," Mr. Schelling said. "It was not a foregone conclusion they would honor this nuclear taboo with their backs to the wall."

More here.

Earlier this year in EconJournalWatch, economists Dan Klein, Tyler Cowen, and Timur Kuran argued that Schelling deserved a Nobel based on his wide-ranging influence:

THOMAS SCHELLING HAS BEEN ONE OF THE, AND IN MANY CASES the, pioneer in developing the following ideas: coordination concepts, focal points, convention, commitments (including promises and threats) as strategic tactics, the idea that strategic strength may lie in weaknesses and limitations, brinkmanship as the strategic manipulation of risk, speech as a strategic device, tipping points and critical mass, path-dependence and lock-in of suboptimal conventions, self-fulfilling prophecy, repeated interaction and reputation as a basis for cooperation, the multiple self, and self-commitment as a strategic tactic in the contest for self-control.

Perhaps even more impressive, Klein et al. argue, is Schelling's committment to the human dimension in a field notorious for willing away complex human psychology and replacing it with math:

Schelling seems to say that being human is an open-ended process, and our theories should be populated by these open-ended creatures. No machine or mathematical function can, by itself, approximate the human being.

Their prescient brief is online here. (Hat tip: Adrian Moore)

Over the years, Reason has interviewed many Nobel winners in economics, including F.A. Hayek, Milton Friedman, Vernon Smith, and Ronald Coase. We've also published work by James M Buchanan (on communitariansim) and James J. Heckman (on the analytical and methodological failures of The Bell Curve).

And we're getting to the rest.

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  1. and don’t forget Professor Schelling’s colorful past. 🙂

    Prof Aumann reviewed my old micro Prof’s first paper, about 20-some odd years ago. we made him dig up the letter of acceptance (from nov 1983) and give it to the first year students. chuckle.

    congrats!

    cheers,
    drf

  2. I thought Schelling’s biggest accomplishment was pitching with his ankle bleeding in the World Series last year.

  3. but JF, at least this year the argyle golf sox he’s donning this mid october won’t show the bloodstain.

    heh.

  4. October is always a nice time to swap stories on the strange habits of Nobelists.

    Last October in Santa Barbara, we got to hear one of our physicists deliver his acceptance speech. It was a good speech, and you could really tell that he’d been working on it every September for the last several years.

  5. thoreau PhD,

    Was that Bob Laughlin? I bet it was. I attended a talk by him in Boulder.

  6. Nope. David Gross, the 2004 winner from Santa Barbara.

    I saw a talk by Laughlin. I also read one of his books. His ideas interest me.

  7. Rick:

    digging out there?

    what’s it like having a good football team?

    and could you please beat the pats?

    thanks!
    drf

  8. Hey, don’t leave out Robert Aumann (his co-winner)!

    That guy created some really beautiful and natural concepts in game theory. One of them is “correlated equilibrium,” which is a generalization of Nash equilibrium, but it can allow all players to get higher utilities than they could get with Nash. The catch is that you need an external trusted party to make some random choices, but this can be solved by cryptography.

    That’s just one of his contributions — his CV is full of important new concepts and extensions.

  9. drf,

    As Rick’s crosstown neighbor, I’ll answer that! Don’t believe the hype, in most of the town the snow’s all melted already, except in the mountains which looked GORGEOUS this morn!

    As for beating the Pats, we’re working on it….

  10. thoreau,

    I read Laughlin’s A Different Universe. I find his ideas about the laws of physics as emergent phenomena interesting as well.

  11. Hi drf,

    To what fyodor said, I’ll just add that we did have a lot of limbs snap cuz the snow was so wet and heavy and the trees still full of leaves. Also, Denver’s power grid seems to be trying to do an impression of Havana’s, but is about back to normal. As fyodor can tell you too, the sun often clears the streets and sidewalks here in Denver pretty quick- different than Chi-Town, I know. Our grass is still covered, but won’t be in a day or two.

    The game’s here so the Broncos have a good chance of beating the Pats, those posers! (sure hope joe doesn’t drop in on this thread)

  12. Rick-

    I am, to be honest, skeptical of his notion that all laws of physics are emergent from phenomena on smaller scales. I mean, maybe the laws of physics are indeed a bottomless pit, but I’m not convinced.

    What I am convinced of by his book is that going to a more detailed description does not necessarily give more insight. In some sense physicists already know this (nobody tries to incorporate quarks into models of fluid flow, for instance). But I have sometimes thought that the point of diminishing returns is at a level much more detailed than we’re working on, and that if I just had a really good computational model I could incorporate lots more stuff. Laughlin’s point is that a more detailed model is frequently pointless.

    Good food for thought.

  13. thoreau,
    What you said at 2:59 is the main point made over and over in all kinds of disciplines at the Santa Fe Institute.

  14. Rick,

    Our grass is still covered, but won’t be in a day or two.

    Guess you got more down there in the south part of town. Is all clear up here!!

  15. do people do those jackassey (sic) things like claim parking places they dig out (poorly, usually) with chairs and vandalize cars that move into ’em?

    gawd i hate that about the ravenswood neighborhood.

  16. oh, and this is kinda funny, what, given how people were either pooh-poohing game theory or inventing their own kinds of it the other day.

    “rational game theory”. what a hot shit… oh yeah.

    here’s some ddt for the kool aid.

  17. By the way, they just recently announced the recipients of the 2005 Ig Nobel Prize.

    “The entrepreneurs of Nigeria” won the prize for literature.

  18. Strangely, drf, I was wondering about the usefulness of chair-ing my parking space under any and all circumstances.

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