Farewell to the game theory master who helped prevent a nuclear apocalypse

Last year was a year of celebrity deaths. But perhaps the most significant of all received very little coverage. Just before Christmas, Thomas Schelling, Nobel Laureate in economics, died aged 95.

In the early, tense years of the Cold War between America and the Soviet Union in the late 1940s and 1950s, Schelling’s ideas were enormously influential in preventing nuclear conflict from breaking out. As he pointed out in his Nobel Prize lecture, there was a real danger of this.

The US government invested heavily in the then new science of game theory. How do you handle a weapon which is so devastating you do not want to use it, while at the same time convincing the other side that you might? Schelling was instrumental in creating the strategy of credible threats.

But his mind ranged powerfully over a wide range of disparate issues. Our understanding of crime, obesity, smoking, binge drinking – a whole host of social problems – has been improved substantially by Schelling’s work. He saw that there are underlying similarities in how they develop.

His most important work in this area was published in 1973, in a paper with the fantastic title “Hockey helmets, concealed weapons and daylight saving”. Schelling’s inspiration was a piece in the sports section of a newspaper about ice hockey, a game even more brutal than Rugby League.

A star player had suffered serious head injuries from the flying puck while not wearing a helmet. The reporter interviewed other leading players, none of whom wore helmets. It was clear that they understood the very real dangers involved. A rational economic person, weighing up the costs and benefits, would always wear a helmet. But when asked why he didn’t, a top boy answered “I don’t because the other guys don’t”.

Schelling crystallised this into a mathematical concept he called “binary choice with externalities”. The choice facing an individual is binary. Either you wear a helmet or you don’t. Either you smoke or you don’t. But your choice may affect how other people in your peer group make their choices.

If no one else wears a helmet, you look soft by wearing one. If all your friends smoke, you may do so just to fit in. So the decision of an individual can have effects which are “external” to the decision itself. Understanding this is crucial to policy-makers trying to influence the outcome. Rational choice theory may not always apply.

His ideas on game theory live on. Indeed, they appear to have influenced President-Elect Trump. Trump has sent out many signs that he wants to work with Putin’s Russia. But just before Christmas, he tweeted, inexplicably to many, that America should expand its nuclear arsenal. He was in fact making a credible threat. Putin, an ex-KGB man, knew that it was Reagan ratcheting up defence spending which finally broke the old Soviet Union. So Trump signals in a single tweet: we want to cooperate, but if you don’t, your economy will collapse as you try to keep up with us.

Thomas Schelling, polymath of genius, I salute you!

Paul Ormerod

As published in CITY AM on Wednesday 4th January

Image: Bomb by _Gavroche_ is licensed under CC BY 2.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.