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Meet the master of game theory
Sunil Jain in New Delhi | January 18, 2007
Though the quaint overhead projectors ("so people don't lose track of what I just said") make the set look a bit different, Aumann could just as well be Jay Leno, witty as he is.
"Maybe I should have got it for peace ('even though I study war, it is really peace I'm interested in')," he says, "and the other fellow (Muhammad Yunus of Grameen Bank) should have got it for economics since he really dealt with economics."
Warming to his audience, he starts off with some examples of Game Theory (that's what he won the Nobel for) at New Delhi's India Habitat Centre where he's at the invite of the India Development Foundation, and talks of how he gave the same lecture at his acceptance and at several other places getting one critical equation wrong.
"And no one noticed!" Till many lectures later, someone pointed it out, and "I just managed to make the correction before they published the speech in a book", Naumann says self-deprecatingly.
Curiously, though Aumann is known for his great insights into war using game theory ("war is rational" is a famous Aumann gem), neither the Prime Minister nor the President who Aumann met during his third visit to the country spoke about this.
The PM spoke of the need to increase the spread of education, the President asked the Nobel laureate if collectives were the reason for the success of Israeli agriculture.
No, Aumann said categorically, it was the demise of collectives that ensured Israeli agriculture did well since that's when incentives came into play for the first time.
Incentives, Aumann tells the audience, is how you can summarise economics, or game theory, in one word - once you let incentives run free, the results are intuitively obvious, and predictable.
He decides to do the same game, in English this time around. If there are several hair brush companies selling brushes, their instinctive reaction may be to sell inferior brushes and disappear.
For the individual, the instinctive reaction is to buy the cheapest brush. But neither happen. Why? The company knows that it stands to gain from being a long term player and knows it cannot do that if it gets a bad name, and so puts out quality stuff. The individual knows if a company's going to be around, it'll sell good stuff.
Similarly, concludes Aumann, if you want peace, you have to increase the cost of going to war for the other side. Lower the threshold by talking peace all the time, and you encourage the other side to go to war.
"What prevented the Cold War from getting hot," cracks Aumann, "was the presence of bombers with nuclear bombs patrolling the skies!"
He invokes Churchill who said, "If you want peace, prepare for war". It may sound facetious, but the fact that there's been no world war in the last six decades should count for something.
Using game theorists to design the auction of radio spectrum for cellular telephony, Aumann tells the press during his visit, got the US treasury around $50 billion in license fee against the $0.5 billion projected earlier.
He gives examples of countries who've also used game theorists in auctions, and admits no one really wanted to know how this could be done in the Indian context.
From the policy-making point of view, Aumann's trip may just have been a wasted opportunity, though the same can't be said of the game theorists at IDF who made the trip happen.