Robert J. Aumann and Thomas C. Schelling today were awarded the Nobel Memorial Prize in Economic Sciences. Mr. Aumann is a professor of the Center for Rationality, Hebrew University of Jerusalem, and Mr. Schelling is a professor emeritus of the Department of Economics and School of Public Policy, University of Maryland, College Park, and professor emeritus of political economy at Harvard University, Cambridge, Mass. The Nobel prize committee statement cited their work "for having enhanced our understanding of conflict and cooperation through game-theory analysis ... a method of used to analyze strategic interaction among different agents." As a result of their work, "behavior which used to be classified as irrational has become understandable and rational. Their work has contributed significantly to bridging the gap between economics and other behavioral and social sciences," the statement said. Richard H. Thaler, professor of behavioral science and economics and director of Center for Decision Research, Graduate School of Business, University of Chicago, and a principal of Fuller and Thaler Asset Management, said Mr. Schelling "worked on commitment strategies in a game theory context (and) to what situations would one commit himself and eliminate other options." "Certainly he (Mr. Schelling) is a forerunner of behavioral economics and a friend of behavioral economics," Mr. Thaler said. Peter Jankovskis, principal and director of research, OakBrook Investments, said he remembered Mr. Schelling as "one of the fathers of behavioral finance."
Bruce I. Jacobs, principal, Jacobs Levy Equity Management, said the work of both Nobel laureates "has many implications ... for competitive relationships between firms, employers and employees, etc. Drawing on economics and mathematics, their work has gone on to influence both experimental economics and behavioral economics. Game theory examines how decisions come about from the interactions between parties often having competing interests. Investing is more concerned with decision theory. That is how one person, or firm, comes to a decision based on all available information, which may include the opinions and actions of others, such as Wall Street security analysts, corporate management, or other investors. While we make no explicit use of the work of these Nobel laureates, it is sometimes useful to view market behavior through the lens of game theory. In his later research, (Mr.) Schelling looked at tipping theory, which examines the rapid movement of a system from one equilibrium to another. (Mr.) Schelling's application was to 'white flight' and the problem of segregated neighborhoods, but tipping theory may also be able to shed some light on information cascades and crashes in financial markets."