Stefan Kesting and André Pedersen Ystehede recount Thomas Schelling’s journey. He was recognised for his contributions to understanding international cooperation and conflict, game theory, behavioural and complexity economics, agent-based modelling and global warming. He even influenced Hollywood.
Few economists have been appreciated so much from such a wide variety of scientific fields and schools of thought as Thomas Crombie Schelling. So often he was described as brilliant by colleagues and his students. Economist, Paul Samuelson – the first American winner of the Nobel Prize in Economics and credited by the judges as having “done more than any other contemporary economist to raise the level of scientific analysis in economic theory,” – said of Schelling: “Age cannot slow down his creativity, nor custom stale his infinite variety.”
Schelling started his studies at University of California, Berkeley and earned his PhD at Harvard University, so it was clear he was headed for great things from the get-go. He spent his academic career at Yale University, Harvard University and University of Maryland, along with various spells as a government advisor or committee leader. These ventures gave him a lot of connections and insights beyond “pure” economics to become “an extremely well-educated amateur” as he described himself.
“His doctoral students make a remarkable list and illustrate the breadth of his knowledge and creativity.”
This is clearly an understatement. His doctoral students make a remarkable list and illustrate the breadth of his knowledge and creativity: Michael Spence, Nobel laureate with Akerlof and Stiglitz; the distinguished evolutionary economist, Richard Nelson; and Daniel Ellsberg. While Ellsberg is perhaps better known for leaking his contribution to the RAND report on the US war effort in Vietnam to the Washington Post, his contribution to decision theory known as Ellsberg paradox was also important. No less impressive were Schelling’s own advisors: Arthur Smithies, Wassily Leontief and James Duesenberry.
Entering the World Stage
In 1956 and 1957, during his time at Yale, Schelling published two papers that would become the foundation for his contribution to game theory acknowledged by the Nobel Economic Sciences Prize Committee. Few economists took up on the articles which found more interest among sociologists and political scientists.
“He revolutionised game theory in economics even before it was formally introduced to economics.”
His work was an attempt to persuade game theorists to increase their consideration for strategic activities – promises and threats, tacit bargaining and the design of enforceable contracts and rules. Credible commitment was a central theme and remained a trope in his work to come.
Perhaps his best-known book is The Strategy of Conflict(1960) in which he revolutionised game theory in economics even before it was formally introduced to economics. The notion of envisaging oneself in the other’s place is best known for its conciliatory meaning, but it was a breakthrough in strategic game theory.
The book was based on Schelling’s experience as a foreign policy officer at the Office of the Director for Mutual Security. It draws on his time at the bargaining table negotiating with European government officials regarding the Marshall Plan and other foreign aid programmes.
“He saw his creative application of game theory to social, economic and political problems as a specific – more practical – contribution.”
Schelling saw himself more as a user of game theory than a game theoretician. He praised Robert Aumann, his fellow recipient of the Swedish Riksbank’s Prize in Economic Science in Memory of Alfred Nobel in 2005 “for having enhanced our understanding of conflict and cooperation through game theory analysis”.
In contrast, he saw his creative application of game theory to social, economic and political problems as a specific – more practical – contribution. The emphasis of his work was on helping with conflict resolution and the avoidance of war. His stature in this field earned him an important advisory position for the US during the Cold War and the arms race. Moreover, his insight in the arms race and game theory led to his recruitment as an advisor to film director Stanley Kubrick for the film Dr Strangelove, that satirised the fears during the Cold War years of a nuclear conflict between the Soviet Union and the US.
Schelling’s last affiliation with the White House was his involvement in the US operation Rolling Thunderin which the US bombed targeted areas in North Vietnam to deter further continuation in the war by the Vietcong. However, when this strategy failed after the first three weeks Schelling advised that it be abandoned. Early in 1970 his connection with the White House ended with his opposition to the secret US invasion of Cambodia.
That marked a shift in his research focus away from war and the arms race towards social issues such as racial segregation, abusive behaviour and addiction. He became especially interested in addiction following his own attempts to quit smoking.
His participation on the National Academy of Sciences’ Committee on Substance Abuse and Addictive Behaviour, led to his writing two books that dealt with addiction: Choice and Consequencespublished in 1984 and Strategies of Commitmentin 2006. His work on addiction and models of self-control are considered precursors to behavioural economics.
Through researches on the dynamic between individual behaviour and social phenomena he made an important contribution to complexity economics with the publication of Dynamic models of segregationin 1971. This is considered a forerunner to agent-based computational modelling.
Later in Micromotives and Macrobehaviour, published in 1978, he explores how individuals with different characteristics and preferences make decisions leading to phenomena that are counter-intuitive at the macro-level. His most famous example is that of racial tipping points in neighbourhoods.
The main tenet of the book was that “how well each [individual] does for himself in adapting to his social environment is not the same thing as how satisfactory a social environment they collectively create for themselves”1. In the book, he used binary groups and very simple mathematics intuitively to generate very complicated outcomes.
At a summit in Venice in 1980, US President, Jimmy Carter, had been made aware by Chancellor of West Germany, Helmut Schmidt, of the “carbon dioxide problem” – an early description of the global impact of the Greenhouse effect. That led to funds being released by Congress for a deeper study into the problem, and Schelling was asked to join the Carbon Dioxide Assessment Committee of the National Academy of Sciences.
“Schelling never worked at the heart of economics and he was well aware of that.”
His involvement with this study expanded his research interest into the issues of climate change and global warming. He later became part of the expert panel that drafted the UN’s Copenhagen Consensus in 2003 – taking him back to Denmark where he had been deployed with the Marshall Plan in 1948-49. When he was elected president of the American Economic Association in 1991, he argued in favour of a carbon tax to reduce global warming in his first presidential lecture.
Much of Schelling’s work was concerned with specific groups or issues in society and his approach to social science mimicked the famous dictum by Karl Marx: “Philosophers have only interpreted the world. The point, however, is to change it”. Schelling started out most of his articles and books by posing a question drawn from everyday life or the current political debate to attract the interest of his readers. This led his research to what some would consider obscure topics for an economist, but it also allowed his creativity to flourish.
Schelling never worked at the heart of economics and he was well aware of that. Nevertheless it was never his aim to make any theoretical contribution with his work, but to try to make the world a better place. He described himself as an “errant” economist and that description is perhaps the most accurate and even flattering considering what most of the economic profession has become.