MON, OCT 12 2020-theG&BJournal-Two American economists Paul R. Milgrom, Stanford University, USA and Robert B. Wilson Stanford University, USA has been awarded the Nobel Prize in economics by the Nobel Committee for their work in how auctions work.
The Committee in an announcement today said economists have used their insights to design new auction formats for goods and services that are difficult to sell in a traditional way, such as radio frequencies.
‘’Their discoveries have benefitted sellers, buyers and taxpayers around the world, the Committee said.
Robert Wilson developed the theory for auctions of objects with a common value – a value which is uncertain beforehand but, in the end, is the same for everyone. Examples include the future value of radio frequencies or the volume of minerals in a particular area. Wilson showed why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner’s curse – that is, about paying too much and losing out.
Paul Milgrom formulated a more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder. He analysed the bidding strategies in a number of well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other’s estimated values during bidding.
“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,” says Peter Fredriksson, chair of the Prize Committee.
Over time, societies have allocated ever more complex objects among users, such as landing slots and radio frequencies. In response, Milgrom and Wilson invented new formats for auctioning off many interrelated objects simultaneously, on behalf of a seller motivated by broad societal benefit rather than maximal revenue.
In 1994, the US authorities first used one of their auction formats to sell radio frequencies to telecom operators. Since then, many other countries have followed suit.
10 million Swedish kronor, the Prize money, will to be shared equally between the Laureates.