Economy

Two Americans win Nobel prize in economics for inventing new auction formats

But Milgrom couldn't be reached, so his neighbor - and fellow prize victor - Robert Wilson stepped up and walked over to Milgrom's house. "She got to watch live as Wilson told Milgrom he'd won the #NobelPrize", the university tweeted. "Paul", he said. "It's Bob Wilson".

"It's nice to have their respect but their affection as well", he said.

The award is not one of the five original prizes established by industrialist Alfred Nobel in 1895, but instead was created by Sweden's central bank in 1969.

The two men tackled the tricky problem of making auctions work efficiently.

The Royal Swedish Academy of Sciences added in a press release: "Wilson showed why rational bidders tend to place bids below their own best estimate of the common value: they are anxious about the winner's curse - that is, about paying too much and losing out".

The effects of their work can be seen all around.

Explained | What is auction theory, and what was the winners' research?

'We're really motivated to use theory in a very practical way to improve various economic processes, ' Wilson said.

Before the 1990s, the US government essentially conducted "beauty contests" to hand out the frequencies, letting companies make their case for getting the licenses. Both Milgrom and Wilson are professors at Stanford University in the United States.

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The auction raised $617 million - selling frequencies that previously were handed out for virtually nothing - and became a model for countries from Canada to India. The method has since been used to set prices on such things as electricity and gas. "I've never actively participated in an auction personally", he replied. "My wife is pointing out that we bought ski boots on eBay, I guess that was an auction", Mr Wilson said.

Wilson described Milgrom as "sort of the genius behind all of this auction work". Milgrom developed a more general theory of auctions.

It's not the first time the call from Stockholm has been missed by an American victor.

Among the insights of the two Stanford University economists is an explanation of how bidders seek to avoid the so-called "winner's curse" of over-paying, and what happens when bidders gain a better understanding of their rivals' sense of value.

Like the winners in physics and chemistry, the laureates in economic sciences are selected by the Royal Swedish Academy of Sciences in Stockholm.

The economics prize was the last of six Nobel awards handed out this year.

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 COVID-19, triggering a sharp dip in business activity worldwide.

"Probably I'll just save it for my wife, my children", he said.

"Auctions are everywhere and affect our everyday lives".



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