Monday, October 10, 2005

Aumann and Schelling

This year's economics Nobel goes to Thomas Schelling and Robert Aumann. I've never read either, per se, but 4-5 weeks of the Advanced Microeconomics course I just took were based on their ideas. Schelling helped develop the notions of commitment, deterrence, credibility and focal points, all now fundamental concepts in game theory. Aumann, among other things, developed the theory of repeated games. (One of the oddest areas in game theory. Aumann pointed out that finitely and infinitely repeated games yield very different outcomes. In particular, infinitely repeated games can have nearly any payoff tuple as an equilibrium (the "folk" theorem) and finitely repeated games often have ridiculously unrealistic equilibria (as in the centipede game.))

Marginal Revolution has comments on both.

Tyler Cowen writes:
Both men clearly deserve the prize. I view this year's award as a welcome swing back to the philosophical, theoretical, and speculative dimensions of economics. In recent years the Committee seems to have gone out of its way to reward the scientistic approach to economics (Heckman and McFadden, for instance). All these earlier picks were good ones, but I am happy to see Schelling -- a fruitful generalist if there ever was one -- and Aumann, a deeply philosophical thinker, get the nod.


I agree that this swing (one data point makes a trend?) is welcome. The philosophical and theoretical dimensions of economics are fundamentally, I think, why I want to do economics. It's also interesting that Tyler calls Aumann (who I know little about) a deeply philosophical thinker, because he is also a deeply mathematical thinker. For example, Aumann "introduced measure theory into the analysis of economies with an infinite number of agents." That's hard. But the result says something fundamental about the nature of perfect competition. It's the ability to combine the precision of the mathematical knife with a view of what's actually important that makes a brilliant scientist.

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