Stanford economists win Nobel prize for auction theory

Stanford economists win Nobel prize for auction theory”

"Their discoveries are of great benefit to the society", Peter Fredriksson, chair of the Prize Committee said.

This year's Laureates in Economic Sciences have made auction theory more applicable in practice through the creation of new, bespoke auction formats.

Wilson's work led to the theory of a common value, which is the best estimate of what an item is worth that bidders then try to set their offers below to avoid overpaying. Public procurements can also be conducted as auctions.

In the 1990s, the U.S. Federal Communications Commission put this theory to work to better allocate radio frequency bands to telecom and media companies.

Milgrom complemented that with theories on "private values", when the perceived value of something differs from bidder to bidder. By using Milgrom and Wilson's auction format, created to counter the problems of uncertain values and the winner's curse, the new FCC spectrum auctions drove billions of dollars in sales over the next twenty years.

The winners were announced in Stockholm by Goran Hansson, secretary-general of the Royal Swedish Academy of Sciences, rounding off a week of Nobel Prizes. He became the Shirley and Leonard Ely Professor of Humanities and Sciences at Stanford University, and frequently lectures at Israeli universities.

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But he said adverts on search engines were usually sold at auction, and noted his wife had recently bought some ski boots on eBay. "I've never actively participated in an auction personally", he replied.

Using auction theory, it is possible to explain how these three factors govern the bidders' strategic behaviour and thus the auction's outcome.

Last year, Indian-American economist Abhijit Banerjee and Esther Duflo, both of MIT, and Michael Kremer of Harvard were honored for more than 20 years of economic research to develop new ways to study and help in alleviating global poverty. Since its establishment in 1969, it has been awarded 51 times and is now widely considered one of the Nobel prizes.

Few economists could have predicted last fall that the globe would come to a virtual standstill within months as governments closed their borders, imposed lockdowns and ordered other measures to stop the spread of the novel coronavirus, triggering a sharp drop in business activity worldwide.

Wilson and and his fellow victor Milgrom will share prize money of 10 million kronor ($1.1 million), up from 9 million kronor awarded previously. The World Food Program won the peace prize for its effort to combat hunger.

Two American professors have been awarded the Nobel Prize for economic sciences for their work on how auctions function, a field that affects everything from high-end art prices to consumers' electricity bills.

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