American economists Paul Milgrom and Robert Wilson won the 2020 Nobel Prize in economics Monday for their “improvements to auction theory and inventions of new auction formats.”
The Stanford University scholars have conducted innovative research into the inner workings of auctions and created new formats for auctioning goods and services that are tough to sell traditionally, the Swedish Academy said.
US officials started using one of their auction methods in 1994 to sell radio frequencies to telecom operators, and many other countries went on to do the same, according to the academy. The formats they developed have also been used to sell fishing quotas, aircraft landing slots and emissions allowances.
“This year’s Laureates in Economic Sciences started out with fundamental theory and later used their results in practical applications, which have spread globally,” Peter Fredriksson, chair of the Prize Committee, said in a statement. “Their discoveries are of great benefit to society.”
Wilson, 83, was Milgrom’s Ph.D. thesis adviser at Stanford and the two went on to become collaborators. Milgrom, 72, told the Associated Press that he learned of their Nobel win when he got a knock at his door from Wilson, who lives across the street from him.
“We’re really motivated to use theory in a very practical way to improve various economic processes,” Wilson told the news agency, calling his former student Milgrom “sort of the genius behind all of this auction work.”
The pair will split an award of 10 million Swedish krona, or about $1.1 million.
The Nobel committee commended Wilson’s theory for auctions of things with a “common value,” or a value that is initially uncertain but ultimately the same for everyone, such as “the future value of radio frequencies or the volume of minerals in a particular area.”
Milgrom developed a “more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder,” the committee said.
He also analyzed the bidding strategies for several 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,” according to the committee.
The award was the last of the Nobel Prizes given out this year amid the COVID-19 pandemic and the economic crisis it has sparked.
The economics prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was not one of the five original prizes established in 1895. It was instead set up by Sweden’s central bank and first awarded in 1969.
With Post Wires