Israeli and American citizen Robert J Aumann and American Thomas C Schelling won the 2005 Nobel Memorial Prize in Economic Sciences on Monday for their work in game-theory analysis.

The pair won the prize "for having enhanced our understanding of conflict and cooperation through game-theory analysis," the Royal Swedish Academy of Sciences said.

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.

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"The repeated-games approach clarifies the raison d'etre of many institutions, ranging from merchant guilds and organised crime to wage negotiations and international trade agreements."

Schelling (picture, left) is a professor at the University of Maryland's department of economics and a professor emeritus at Harvard.

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."

Aumann, a professor at the Center for Rationality at the Hebrew University of Jerusalem, was cited for his work in looking 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 (picture, right) was the first to conduct a full-fledged formal analysis of so-called infinitely repeated games. His research identified exactly what outcomes can be upheld over time in long-run relations.

Aumann was born in Frankfurt, Germany, but holds US and Israeli citizenship. He is not the first Israeli to win the economics prize. In 2002, Daniel Kahneman, who also has US and Israeli citizenship, shared the award.