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Israeli, American win Nobel for economics
Updated: 2005-10-10 20:36

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

"Why do some groups of individuals, organizations and countries succeed in promoting cooperation while others suffer from conflict?" the Royal Swedish Academy of Sciences said in announcing the award.

Schelling, 75, is a professor at the University of Maryland's department of economics and a professor emeritus at Harvard. Aumann, 84, is a professor at the Center for Rationality at the Hebrew University of Jerusalem.

It was the sixth straight year that Americans have won the prize, or had a share in it.

Aumann and Schelling were cited for using game-theory analysis to "explain economic conflicts such as price wars and trade wars, as well as why some communities are more successful than others in managing common-pool resources."

"The repeated-games approach clarifies the raison d'etre of many institutions, ranging from merchant guilds and organized crime to wage negotiations and international trade agreements," the citation said.

Schelling "showed that a party can strengthen its position by overtly worsening its own options, that the capability to retaliate can be more useful than the ability to resist an attack, and that uncertain retaliation is more credible and more efficient than certain retaliation," the academy said. "These insights have proven to be of great relevance for conflict resolution and efforts to avoid war."

Aumann was cited for his work in looking at how real-world situations can affect the theory.

"In many real-world situations, cooperation may be easier to sustain in a long-term relationship than in a single encounter. Analyses of short-run games are, thus, often too restrictive," the academy said. "Robert Aumann was the first to conduct a full-fledged formal analysis of so-called infinitely repeated games. His research identified exactly what outcomes can be upheld over time in long-run relations."

Reached by telephone in Israel, Aumann told the Associated Press: "I feel great."

He said he would not say anything more until a news conference later in the day.

Aumann was born in Frankfurt, Germany, but holds U.S. and Israeli citizenship. He is not the first Israeli to win the economics prize. In 2002, Daniel Kahneman, who also has U.S. and Israeli citizenship, shared the award.

Last year's winners were Edward C. Prescott, an Arizona State University professor, and Norwegian Finn E. Kydland, an economics professor at the University of California, Santa Barbara, who won for their research on how government policies affect economies around the world and why supply-side shocks like high oil prices can dampen business cycles.

The economics prize, worth 10 million kronor ($1.3 million), is the only one of the Nobel awards not established in the will of Swedish industrialist Alfred Nobel, the inventor of dynamite. The medicine, physics, chemistry, literature and peace prizes were first awarded in 1901, while the economics prize was set up separately by the Swedish central bank in 1968.

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