In awarding the Nobel Prize in Economics to Thomas C. Schelling, the Swedish Academy of Sciences honored a man who is “an exceptional independent thinker” and who has pioneered a variety of concepts in economics and in other social sciences. That’s the assessment of Dan Klein, who teaches economics at George Mason University in Virginia and has a professional relationship with Schelling,
Schelling, 84, who taught at Harvard and retired recently from the University of Maryland, shares the prize with Robert Aumann, who teaches at the Center for Rationality, Hebrew University of Jerusalem. The two are something of the “yin” and “yang” of game theory, a discipline that analyzes human interactions with an eye to how the “if he thinks that I think” question affects our choices and strategies.
John Nash, who shared the 1994 Nobel and who was depicted in the film “A Beautiful Mind,” was another game-theory pioneer.
Schelling is the big-picture thinker, who has used (and helped to develop) game theory’s applicability to the nuclear arms race, geostrategic maneuvering, price formation in large markets, negotiations of all kinds, tipping points and critical mass and the development of cooperative strategies.
Aumann’s forte, as the Nobel Committee put it, is in “using the tools of mathematical analysis to develop concepts and hypotheses, provide them with concise formulations and draw precise conclusions.”
In this esoteric field it has been Schelling’s gift to keep it human. As Klein put it in an appreciation earlier this year in the online journal econjournalwatch.org:
“His career reflects the deep sense that stories should be about human beings, not mere utility functions, and that formalization, while fruitful in some respects, tends to kill human qualities. … Schelling seems to say that being human is an open-ended process. … No machine or mathematical function can, by itself, approximate the human being.”
Game theory deals in situations in which real choices are possible, not those where a coercive agent precludes choices by passing laws or issuing mandates. That’s the realm — the realm of freedom — in which it is appropriate for human beings with open-ended possibilities to operate most of the time. We humans flourish best (though we will make mistakes) when our choices are real and our own, not those imposed upon us by some agency that thinks it knows our interests better than we do.
Schelling’s most seminal book is probably “Strategy of Conflict” (1960), which discussed ways to establish a climate of confidence in arms negotiations during the arms-race phase of the Cold War.
Applying theory and analysis to human behavior runs the risk of subconsciously converting people into functions in an equation or automatons. Thomas Schelling never lost sight of the human factor.