Aumann, who was awarded the Nobel prize in economics in 2005 for his work on conflict and co-operation through game-theory analysis, said that the single important reason behind the economic crisis is the high inter-connectivity of large financial institutions.
When asked what triggered the current economic crisis, he cited the examples of AIG and Lehman Brothers and explained: “Financial firms were guaranteers for each other while purchasing financial papers of others. So when one collapsed so did the other, along with all smaller firms associated with them.” He opposed the bailouts being announced by economically beleaguered countries saying that “it sends out the wrong message”.
He also advised companies to restructure the compensation packages they give to their top executives and that they should stop handing out stock options to them.
Game-theory and 26/11
The Israeli mathematician said that game theory had various practical applications and can be applied to even to the analysis of conflicts.
Applying the to analyse the 26/11 attacks, he said that giving into terrorists would provide them wrong incentives and embolden them to carry out more attacks.
Talking about the Israel- Hamas flare up, Aumann said that it was the consequence of a policy of appeasement followed by the Israel in the recent past.