I was sitting with Sylvia Nasar in the NYU cafe in October 1994 discussing Gregory Mankiw's principles of economics text and the bonus he received to write the book (I was a reader for the publisher) in preparation for a column she was writing on the topic. The previous week she had written a long article in the NYT on John Nash's life and career. She told me she was thinking of writing a book on Nash. I told her I thought the idea was silly and that nobody was all that interested in Nash. Thus my fate as a prognosticator of very limited ability was sealed as A Beautiful Mind went on to be a best-seller and a major motion picture. However, during my conversation with Sylvia that day, and in fact, with several colleagues in the department that fall, I stressed that I thought the prize committee screwed up and that the award should have gone to Thomas Schelling. Schelling demonstrates the power of game theory in analyzing the world, rather than refining game theoretic concepts, and thus he represents what economics is all about rather than applied mathematicians. I think Sylvia understood where I was coming from, though she disagreed, but my colleagues at NYU certainly didn't understand what I was saying ---- though they would have been thrilled with the choice of Robert Aumann (who in fact had given a series of special lectures at NYU on common knowledge that I attended).
Well, it took some time, but the Nobel Prize committee has finally honored Schelling. Tyler Cowen, who wrote with Schelling at Harvard, has an excellent post today on Schelling and the links, especially to the piece written by Tyler, Timur Kuran and Dan Klein in EJW on Schelling are important to pursue.
Though it is not his purpose, Tyler Cowen gives good reasons why those interested in Austrian economics should be very pleased with this award. True, the award didn't go to Kirzner or to Tullock, but it went to perhaps the next best choice for those of us interested in invisible hand explanations and a broader notion of economics and political economy. I've been using one of Schelling's book in my graduate seminar in Austrian economics for several years.
My original fascination with Schelling came from Kenneth Boulding, who stressed Schelling's contribution in The Strategy of Conflict. Then Jim Buchanan emphasized to us the power that game theory had in addressing questions in political economy. And finally, Dan Klein (who I believe has impeccable judgment in these matters) kept saying how insightful Schelling was so I read him more carefully and became even more convinced. I would say that Schelling's style of thought is very Hayekian, though one that stresses the dark side of invisible hand processes rather than the bright side that seems to be emphasized in Hayek (and Adam Smith). Schelling is a methodological individualists, and one who models choice as if it was being done by humans.
Anyway, it is indeed a good day for economists and political economists.
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