Meknes – The 2020 Nobel Prize in Economic Sciences went to Paul R Milgrom and Robert B Wilson for their invention of new auction formats and contributions to auction theory. Goran K Hansson, Secretary-General of the Royal Swedish Academy of Sciences, announced the news this morning in Stockholm.
Milgrom is a professor of Humanities and Sciences at Stanford University, where Wilson is a professor of Management.
In a press release, the Royal Swedish Academy of Sciences stated that the winners “have improved auction theory and invented new auction formats, benefiting sellers, buyers, and taxpayers around the world.”
The person with the highest bid is always the buyer of an auction item. This applies to all types of objects and services, from household art and antiques to security services, minerals, and energy. Auction theory seeks to understand the auction format and inform auction design, with significant implications on economics around the world.
Robert Wilson theorized on auctions of objects with a common value. He showed the reason why rational bidders tend to place bids below their own best estimate of the common value. The economist deduced that 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 one bidder to another. He used well-known auction formats to analyze the bidding strategies. The laureate demonstrated that if bidders learn more about each other’s estimated values during bidding, then a format will give the seller higher than expected revenue.
Peter Fredriksson, chair of the Nobel Prize Committee, said that “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.”
A call from the committee woke Wilson up Monday morning with the news. He went to his colleague, living across the street, to share the exciting development.
The Nobel economic sciences winners will jointly receive a SEK 10 million ($1.1 million) prize.