US duo wins Nobel for work on auctions
14 October 2020 | Economics
The Royal Swedish Academy of Sciences noted that the discoveries by Milgrom, 72, and Wilson, 83, "have benefitted sellers, buyers and taxpayers around the world," it said in a statement.
"Auctions affect all of us at every level. Moreover, they are becoming increasingly common and increasingly complicated," the academy said, listing examples such as flexible electricity prices set by daily auctions and countries raising funds through government bond auctions.
Milgrom and Wilson's work "gives us a better understanding of how we should design auctions," jury member Peter Fredriksson told AFP.
Wilson was spotlighted for developing a theory on auctions focusing on a common value, such as the future value of radio frequencies, or the rights to extract minerals in a particular area.
This common value "is uncertain beforehand but, in the end, is the same for everyone," according to the academy.
Wilson's work during 1960s and 1970s showed why bidders tended to bid under what they actually thought the good was worth.
The answer was that they feared the "winner's curse," or winning the auction but paying too much.
Milgrom then came up with a more general theory of auctions by analysing bidding strategies in different auction forms, publishing his seminal papers around 1980.
Both professors at Stanford in the United States, Wilson was Milgrom's thesis advisor and they also live on the same street.
The academy noted that while "people have always sold things to the highest bidder," societies have also had to allocate "ever more complex objects ... such as landing slots and radio frequencies" among users.
"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," the academy said.
They used their theories to create a new auction model that was put into practice by US authorities in 1994 to sell radio frequencies to telecom operators, and are applied by governments around the world in the current rollout of 5G networks.
The winners will share the prize sum of 10 million Swedish kronor (about US$1.1 million). – Nampa/AFP