STOCKHOLM, Sweden -- A pair of game theorists who defined chesslike strategies in politics and business that can be applied to arms races, price wars and actual warfare won the Nobel Memorial Prize in Economic Sciences on Monday.
Israeli American Robert Aumann and U.S. citizen Thomas Schelling won the award for research on game theory, a branch of applied mathematics that uses models to study interactions between countries, businesses or people.
The theory, devised in 1944 by John von Neumann and Oskar Morgenstern, often is used in a political or military context to explain conflicts between countries but recently has been used to map trends in the business world, ranging from how cartels set prices to how companies can better sell their goods and services in new markets.
"The understanding of game theory helps explain economic conflicts like price competition and trade wars," said Jorgen Weibull, chairman of the prize committee. "I think the main impact is on economics, but it also applies to other social sciences."
Aumann, 75, and Schelling, 84, who know each other but have never worked together, were cited by the Royal Swedish Academy of Sciences for helping 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."
It said their works could be applied to understand how merchant guilds, international trade treaties and organized crime groups are formed and operate.
In the economic world, Aumann and Schelling's work is used to prevent illegal cartels between rival companies, said Carl-Gustaf Lofgren, a member of the prize committee.
Two competitors can use game theory to agree on joint price structures that benefit both parties, thereby eliminating fair competition, he explained. But the theory also lets regulators pick up on signs of collusion and ultimately break up illegal cartels.
Schelling teaches at the University of Maryland. He used game theory in his 1960 book "The Strategy of Conflict" to focus on how the United States and the former Soviet Union maintained credible threats that were not likely to be used, given the threat of nuclear annihilation.
Schelling said the prize committee linked the two laureates on the virtue of their respective research. "They linked us together because he is a producer of game theory, and I am a user of game theory," said Schelling, who worked with the U.S. Marshall plan to rebuild Europe after World War II.
Monday's award highlighted developments in game theory that were lauded with the 1994 economics prize to Americans John Harsanyi and John Nash and German Reinhard Selten. Nash was portrayed in the 2001 film "A Beautiful Mind."
Lofgren said Aumann's theories differed from Nash's by introducing an infinite repetition of the same game to find the best solution in long-term relationships instead of in a single encounter.
The difference is illustrated in the "prisoner's dilemma," one of game theory's best-known situations in which two partners in crime are put in separate cells and given an ultimatum: If one implicates the other, he may go free while his partner faces a firing squad.
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