Thomas C. Schelling, a Bethesda resident and retired University of Maryland professor, won the Nobel Prize in economics today for his application of game theory to issues ranging from global security to racial segregation to the behavior of people stuck in traffic. Specifically, Schelling sought to expand explanations for social, political and economic phenomena by taking into account the way people interact with one another.
While this approach is relatively standard now, it was alien to many economists in the 1950s and 60s who looked to theorized "laws" and models of behavior based on assumptions of individual rationality.
Schelling shared the prize with Robert J. Aumann of Hebrew University in Jerusalem.
Reached at his Bethesda home this morning, Schelling, 84, said he had "heard rumors for the last couple of years" but had become convinced that he would not receive the world's most prestigious prize in economics because of his age. He heard the news by phone this morning.
Schelling joined the University of Maryland School of Public Policy in 1990 after teaching at Harvard for 31 years. "I reached retirement age at Harvard," he said, "and I wasn't ready to retire."
In addition to his celebrated academic life, Schelling has been an adviser on arms control and disarmament for presidential administrations beginning with John F. Kennedy in the 1960s, and a leading theorist and consultant on a broad swath of issues, including global climate change and tobacco addiction.
Asked to describe game theory, he said, "It's the study of how people interact when each person's behavior depends on, or is influenced by, the behavior of others." It departs from conventional applications of economics, which traditionally focus on "consumers and producers who take prices for granted and react to them," he said.
The "ordinary human being is sometimes . . . not a single rational individual," Schelling has written. "Some of us, for some decisions, are more like a small collectivity than like the textbook consumer."
In game theory, he said in an interview this morning, "everyone's best choice depends on what others are going to do, whether it's going to war or maneuvering in a traffic jam."
Thus, as he wrote in "Micromotives and Macrobehavior," horn honking in traffic may seem related to a single reason but upon further analysis, "drivers in traffic start honking their horns . . . because someone else honked their horn first. Hearing your car horn, I honk mine, thus encouraging you to honk more insistently. . . . People are responding to an environment that consists of other people responding to their environment, which consists of people responding to an environment of people's responses.
"These situations, in which people's behavior or people's choices depend on the behavior or the choices of other people, are the ones that usually don't permit any simple summation. . . . .We usually have to look at the system of interaction."
Applied to arms control, Schelling "was particularly intrigued by the ways in which the parties' negotiating strength could be affected by different factors, such as the initial alternatives at their disposal and their potential to influence their own and each others' alternatives during the process," the Royal Swedish Academy of Sciences said in its citation today.
In the field of global strategic cooperation, he focused on the "long-run gains a party could achieve by making short-run concessions."
He "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."
Schelling attracted considerable attention during his career for his writings on the causes of racially segregated neighborhoods.
"When I started thinking about this question" in the 1960s, he told an interviewer once, "many American neighborhoods were either mostly white or mostly black. One possible explanation for this, of course, was rampant racism. But I was curious about how this might emerge in a world where racism was not particularly acute, where in fact people might prefer racial diversity.
"The process works basically like this," he said. "Let's say the racial composition of a neighborhood is 55 percent white and 45 percent black, and that the majority population in the surrounding areas is utterly without prejudice. Then you may get a case where more and more members of the majority group move in.
"This may be fine with the minority group for a while," he said. "They may not mind going from being 45 percent of the population to 35 percent. But at some point -- say, when their part of the population is only 20 percent -- then the most sensitive members of that group will probably evacuate, reducing their percentage even further. The result is a highly segregated neighborhood, even though this wasn't the intent of the majority population."
His admirers have credited him with giving them a "new way of thinking" about any number of situations. One reviewer called his approach "logic applied to patterns that are recognizable in real life."
A fellow economist wrote that Schelling "seems to say that being human is an open-ended process and our theories should be populated by these open-ended creatures. No machine or mathematical function, can, by itself, approximate the human being."
Schelling and Aumann, said the Royal Swedish Academy of Sciences, have shared a common trait: "an interest in considering aspects neglected by established theory. . . . A consequence of these endeavors is that the concept of rationality now has a wider interpretation; behavior which used to be classified as irrational has become understandable and rational."
Schelling's most prominent book is "The Strategy of Conflict," published in 1960, which "has influenced generations of thinkers," said the Nobel committee. The economics sciences prize is awarded by the Bank of Sweden Committee for the Prize in Economic Sciences.
Schelling holds a bachelor's degree from the University of California at Berkeley and a doctorate from Harvard.
Aumann, a professor at the Center for Rationality at the Hebrew University of Jerusalem, 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," it said. "His research identified exactly what outcomes can be upheld over time in long-run relations."