American duo wins Nobel Economics Prize
STOCKHOLM: US economists Paul Milgrom and Robert Wilson won the Nobel Economics Prize on Monday for work on commercial auctions, including for goods and services difficult to sell in traditional ways such as radio frequencies, the Nobel Committee said.
The duo was honoured “for improvements to auction theory and inventions of new auction formats,” the jury said. 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.
Wilson, a professor at Stanford in the US, 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, which resulted in three influential papers in the 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.
Also a professor at Stanford, Milgrom and Wilson 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.
Their theories were 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 $1.1 million, 950,000 euros).
Published in Dawn, October 13th, 2020
