Nobel Prizes for Bank of Sweden’s Games, October 2005

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© Hazel Henderson, October 2005
www.hazelhenderson.com
(word count 1,171)


NOBEL PRIZES AND THE BANK OF SWEDEN’S GAME

by
Hazel Henderson

The 2005 Bank of Sweden Prize in Economics (in Memory of Alfred Nobel) was recently announced. The winners, Robert Aumann of Hebrew University in Israel and Thomas Schelling of the University of Maryland, USA are mathematicians and game theorists. The economics profession has adopted methods of game theory because they offer deeper insights into human behavior and the games people play.

The traditional model of “homo economicus” – that ever-rational individual, always maximizing his self-interest in competition with others is now acknowledged as unrealistic. This bleak model of human behavior at the heart of economics is not only dismal – but increasingly proven wrong by many other scientists and much recent research by neuroscientists, microbiologists, psychologists, anthropologists and yes, game theorists. This is why many recent Bank of Sweden Economics prizes have gone to scientists studying human behavior beyond the economics profession, from psychologists to game theorists John Harsonyi, John Nash and Reinhard Selten in 1994.

Economics is a powerful profession, bestriding public policy and private decision-making like a Colossus – and enjoys priority funding at most universities and business schools. Economics also spreads its influence by incorporating research from other fields as its own: as “environmental-economics,” “behavioral-economics” and even “neuro-economics.” Economics, like other social “sciences,” has been viewed as less rigorous and “softer” than the physical or “hard” sciences. Physics and mathematics can reliably guide spaceships, perform engineering feats and design bridges. Economists admit that their models are not reliable, rarely predict economic performance and have failed for economic development.

So how did the Bank of Sweden in 1968 persuade the Nobel Prize Committee to accept a prize (of US $1million) for Economic science – in memory of Alfred Nobel? Peter Nobel, descendant of Alfred Nobel and a human rights lawyer believes it was a public relations effort to legitimize economics as a science. Nobel added in an interview with me (October 26, 2005) “I don’t think economics is a science and I hope the Bank of Sweden Prize will be de-linked from the Nobel Prize.” Peter Nobel with three of his cousins wrote an article four years ago, calling for this “False Nobel” in economics to be awarded separately. Another answer, says historian of science Robert Nadeau, author of The Non Local Universe, “Lies in the Cold War politics of the time, where Marxist economists were claiming their theories as scientific and so were the competing capitalist economists of the West. What better way to win the argument than by persuading the Nobel Committee to make the new Bank of Sweden Prize in Economic Science part of its annual awards!”

Part of this Cold War competition among economists involved recruiting mathematics to “dress up” the dubious assumptions of both camps – whether the “invisible hand” and “homo economicus” of the capitalist economic theories or the similarly arcane Marxist “labor theory” of value. We all know that capitalism won. Neo-liberal market economics became evermore clothed in mathematical models – including those borrowed from game theory.

In 2004, when the Bank of Sweden Prize was awarded to two more economists of the Chicago School, Finn Kydland and Edward Prescott for their 1970 paper (using a lot of fancy mathematics) purporting to prove why central banks should be free of political oversight – many mathematicians finally revolted. Many articles appeared in December 2004, by mathematicians protesting at such misuses of their models – and dozens of editorials (including my own) picked up this emerging scientific brouhaha.

The latest Bank of Sweden prizewinners Aumann and Schelling are masterful researchers of human behavior and many of the games people and institutions play – even though, like economists, they focused mostly on conflict and competition. This bias in both economics and game theory shortchanges the more cooperative sharing and altruistic half of the human behavior. The predominant evidence for cooperation in humanity’s success is now confirmed by new scientific research into hormones, including oxytocin (which allows bonding) and the “mirror” cells in human brains that are a basis for empathy with other humans as I explore in “21st Century Strategies for Sustainability” (www.hazelhenderson.com, click on Recent Papers).

It’s not surprising that the 2005 Bank of Sweden Prize went to game theorists studying human conflict and competitive behavior, so foundational in economic theory. Thomas Schelling’s mathematical game theory models were focused on conflict and were used during the Vietnam War as advice to the US Pentagon on how best to break the resistance of the Viet Cong. Schelling’s advice turned out to be quite wrong, as documented by Fred Kaplan in “All Pain, No Gain,” Oct. 11, 2005 in Slate (www.slate.msn.com).

Aumann also worked during the Cold War, advising the USA on the military strength of the USSR. Between 1965-1968, Aumann also co-wrote papers for the US Arms Control and Disarmament Agency advising on how to play the “poker game” with the Russians of how many missiles each side possessed and strategies for cutting them.

But trying to use mathematical models to delve deeper into human behavior may be just as inappropriate as using them in economics. The new research from other sciences shows just how complex human behavior really is. Most disciplines studying societies and human interactions embrace the entire behavioral repertoire from conflict and competition to cooperation, sharing, caring and even altruism.

Even Charles Darwin’s books are being re-evaluated (www.thedarwinproject.com) and we are learning that Darwin only mentioned competition and the survival of the fittest quite briefly and instead focused on the human genius for bonding, sharing and cooperation as keys to our species’ success – while predicting human evolution toward altruism.

How did economics and game theory get stuck on competition? One explanation is that Darwin’s theories were hijacked by the elites in Victorian Britain, who saw “the survival of the fittest” as the justification for the class system. This focus on competition as fundamental to human nature was also a basic tenet of Adam Smith’s Wealth of Nations (1776). Smith’s invoking of an “invisible hand” that mediated individual competition to produce the most efficient allocation of resources, was derived from the Newtonian physics of the time. Each generation of economists built on these shaky foundations – now being exposed by more advanced science.

A deeper explanation (familiar to women everywhere) is simply male psychology, including the effects of the hormone, testosterone, known to increase aggressive behavior. Economics has always been patriarchal at its core. Its definition of “rational behavior” as competitive maximizing of self-interest implies that cooperative behavior, sharing, caring and volunteering activities are “irrational.” By this logic, economics ignores all unpaid work (at least 50% of all production in most countries) while treating the work of females raising children, managing households, growing food for the family (what I call the Love Economy) as “uneconomic.”

Game theorists focus on such competitive “win-lose” and “lose-lose” games as the “prisoner’s dilemma” where lack of trust between two accused of a crime leads each to the worst outcome for both. Yet, recent research on female subjects showed they rejected the “prisoner’s dilemma” and both won the best outcome (a “win-win” game) because they trusted each other.

*****

Hazel Henderson, author of Beyond Globalization and other books, co-created the Calvert-Henderson Quality of Life Indicators, updated at www.calvert-henderson.com and is Executive Producer of the new financial TV series, “Ethical Markets,” currently airing on PBS stations in the USA.

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