By Tamara Traubman, Haaretz Correspondent, The Associated Press and Haaretz Service
Robert J. Aumann, who lives in Israel and holds dual American and Israeli citizenship, and Thomas C. Schelling, an American, have won the 2005 Nobel Prize in Economic Sciences, the Royal Swedish Academy of Sciences announced Monday.
Aumann, who is also known as Yisrael, told reporters that Israel has become the No. 1 world power in the field of game theory. Aumann, the eighth Israeli to receive the Nobel Prize, is a professor emeritus at the Hebrew University of Jerusalem's Institute of Mathematics and a member of the university's Center for Rationality.
Aumann and Schelling won the $1.3 million prize "for having enhanced our understanding of conflict and cooperation through game-theory analysis," the academy said.
"I think game theory creates ideas that are important in solving and approaching conflict in general," Aumann told the awards ceremony by telephone from Israel.
Asked whether it could help solve the Israeli-Palestinian conflict, he said: "I do hope that perhaps some game theory can be used and be part of this solution."
Aumann had not decided what to do with the prize money. "I am totally overwhelmed. I had absolutely no idea," he said.
Hebrew University President Prof. Menachem Magidor said the announcement of the prize "has brought pride and happiness to the university, to the State of Israel and to all of Israeli academia."
Through their work, Aumann, 75, and Schelling, 84, have helped 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 academy said in its citation.
"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," it said.
Aumann was cited for his analysis of "infinitely repeated games" to identify what outcomes can be maintained over time.
"Insights into these issues help 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," said the citation.
Aumann, who was born in Frankfurt, Germany, immigrated to New York with his family in 1938. He studied mathematics in New York and completed his undergraduate and graduate studies over there. He wrote his doctoral dissertation at MIT.
Schelling is a professor at the University of Maryland's department of economics and a professor emeritus at Harvard.
Upon earning his doctorate, Aumann moved to Princeton and began researching the games theory, then a field in its early days. He immigrated to Israel in 1956 and became a staff member at the Hebrew University Mathematics Institute, where he taught until his retirement.
In his research Aumann developed tools for accurate analysis of economic systems where player groups have great influence over the final result, while individual players have very little influence over the outcome of processes.
Last year, two biochemistry professors from the Technion, Aaron Ciechanover and Avram Hershko, won the Nobel Prize in chemistry. Two years ago, Daniel Kahneman, an American-born Israeli, won the Nobel Prize in economics for his studies on decision-making in situations of uncertainty. The other Israeli Nobel laureates are S.Y. Agnon, who won the prize for literature and was the first Israeli to win a Nobel, and Menachem Begin, Yitzhak Rabin and Shimon Peres, who won the Nobel peace prize.