As it turns out, game theory is widely used today in scientific efforts to understand all sorts of things. While Nash’s 1994 Nobel Prize recognized the math establishing game theory’s foundations, the 2005 economics Nobel trumpeted the achievements of two important pioneers of game theory’s many important applications. Economist Thomas Schelling, of the University of Maryland, understood in the 1950s that game theory offered a mathematical language suitable for unifying the social sciences, a vision he articulated in his 1960 book The Strategy of Conflict. “Schelling’s work prompted new developments in game theory and accelerated its use and application throughout the social sciences,” the Royal Swedish Academy of Sciences remarked on awarding the prize.29
Schelling paid particular attention to game-theoretic analysis of international relations, specifically (not surprising for the time) focusing on the risks of armed conflict. In gamelike conflict situations with more than one Nash equilibrium, Schelling showed how to determine which of the equilibrium possibilities was most plausible. And he identified various counterintuitive conclusions about conflict strategy that game theory revealed. An advancing general burning bridges behind him would seem to be limiting his army’s options, for example. But the signal sent to the enemy—that the oncoming army had no way to retreat—would likely diminish the opposition’s willingness to fight. Similar reasoning transferred to the economic realm, where a company might decide to build a big, expensive production plant, even if it meant a higher cost of making its product, if by flaunting such a major commitment it scared competitors out of the market.
Schelling’s insights also extended to games where all the players desire a common (coordinated) outcome more than any particular outcome—in other words, when it is better for everybody to be on the same page, regardless of what the page is. A simple example would be a team of people desiring to eat dinner at the same restaurant. It doesn’t matter what restaurant (as long as the food is not too spicy); the goal is for everyone to be together. When everybody can communicate with each other, coordination is rarely a problem (or at least it shouldn’t be), but in many such