Thomas Schelling’s contribution to behavioural economics

In his 1960 book The Strategy of Conflict, Thomas Schelling proposed a reorientation of game theory, necessary because the game theory of the time used zero-sum methods to analyse non-zero-sum games. He proposed two lines of advance. One, which has been very influential in game theory, was to investigate moves such as threats and commitments that are important in real strategic interactions but not relevant for fully rational zero-sum play. The other, which is more behavioural and much more challenging to mathematical game theory, was to study the ‘perceptual and suggestive’ factors that allow players to solve equilibrium selection problems. Using intuitive arguments and informal experiments, he showed that ordinary human players can do this by using ‘labelling’ properties of games that standard theory abstracts from, and modes of reasoning that standard theory does not recognise.