THE NEUTRAL ZONE
American professors Paul Milgrom and Robert Wilson have won the Nobel Prize for improvements to auction theory and inventions of new auction formats. “This year’s Laureates in Economic Sciences started out with fundamental theory and later used their results in practical applications, which have spread globally. Their discoveries are of great benefit to society,” said Peter Fredriksson, chair of the Prize Committee for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020.
Milgrom’s work included analyzing bidding strategies to determine how auction format can give the seller higher expected revenue. Wilson’s work led with the theory of common value, namely how bidders try to set their offers below the best estimate of what an item is worth. They also researched the so-called winner’s curse. This occurs when buyers worry about overpaying for an item and respond by scaling back their bids. A solution is for the seller to provide additional information before bidding begins, such as an independent appraisal.
Together, Milgrom and Wilson designed the 1994 auction that the Federal Communications Commission used to sell radio spectrum to wireless telephone companies, raising over $120 billion for something that used to be simply given away. Other countries, including Britain, Canada and Spain, went on to adopt similar strategies. FCC Chairman Ajit Pai congratulated Milgrom and Wilson for their “very well-deserved recognition.” FCC Commissioner Jessica Rosenworcel similarly praised the two men for “moderniz[ing] spectrum policy.”
Economist David Blanchflower, a former Bank of England policymaker, said the award failed to “reward people for finding things about the real world rather than for playing economic games.” He added that auction theory doesn’t seem important “in the midst of a pandemic with people struggling to pay the bills.”
Editor’s Note: An earlier version of this story misspelled Ajit Pai. It has been corrected.
Stanford Economists Win Nobel Prize for Research on Auctions – Bloomberg – 10/12/2020
Paul Milgrom and Robert B. Wilson, who won’t be traveling to Stockholm to receive the award due to the Covid-19 crisis, have had their ideas applied to sales of everything from aircraft landing slots to fishing quotas. Their theories are even evolving to encompass renewable energy markets.
Stanford economists win Nobel Prize for auction theory – Axios – 10/12/2020
“The new auction formats are a beautiful example of how basic research can subsequently generate inventions that benefit society,” the academy said. The pair has “improved auction theory and invented new auction formats, benefiting sellers, buyers and taxpayers around the world.”
Nobel Prize in Economic Sciences Is Awarded to U.S. Academics – The Wall Street Journal – 10/12/2020
The announcement Monday gave the U.S. a clean sweep of this year’s Nobel Prizes, with at least one American citizen winning in each of the five categories for which individuals were selected. “There has been an enormous investment in research in the U.S., and that has paid off,” said Göran K. Hansson, secretary-general of the Royal Swedish Academy of Sciences, which awards the prizes.
2 Americans share 2020 Nobel Prize in economics for improving auctions, inventing new formats – The Week – 10/12/2020
The U.S. government was one of the first to try out Milgrom and Wilson’s theories, selling radio frequencies to telecoms in 1994. Their new formats allowed “auctioning off many interrelated objects simultaneously, on behalf of a seller motivated by broad societal benefit rather than maximal revenue,” the Royal Swedish Academy wrote. This is the final Nobel prize of the year. The two economists will split the $1.1 million prize.