Nobel Prize in Economics 2020 is awarded for improvements to auction theory
The Nobel Prize 2020 in Economic Sciences on Monday was awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.” They have improved auction theory and invented new auction formats, benefitting sellers, buyers, and taxpayers around the world. The new auction formats benefit sellers, buyers, and taxpayers, all around the world, according to the Royal Swedish Academy of Sciences.
Every day, auctions distribute astronomical values between buyers and sellers. “This year’s Laureates, Paul Milgrom and Robert Wilson, have studied how auctions work. They have also 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. They have also 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,” The Royal Swedish Academy of Sciences said in a press release.
“Their discoveries have benefitted sellers, buyers, and taxpayers around the world,” it added. New auction formats have been used for radio spectra, fishing quotas, aircraft landing slots, and emissions allowances.
Nowadays, when we hear the word auction, we perhaps think of traditional farm auctions or high-end art auctions – but it could just as well be about selling something on the internet or buying property via an estate agent. Often, the companies that manage our home refuse collection have won a public procurement by placing the lowest bid. Flexible electricity prices, which are determined daily in regional electricity auctions, influence the cost of heating our homes. Our mobile phone coverage depends on which radio frequencies the telecom operators have acquired through spectrum auctions. All countries now take loans by selling government bonds in auctions.
So, auctions affect all of us at every level. Moreover, they are becoming increasingly common and increasingly complicated. Using auction theory, researchers try to understand the outcomes of different rules for bidding and final prices, the auction format. 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. 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 analyzed 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.
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 analyzed 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.
The award caps a week of Nobel Prizes and is technically known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Since its establishment in 1969, it has been awarded 51 times and is now widely considered one of the Nobel prizes.
