SWEDEN: Two American economists have been awarded the Nobel Prize for Economic Sciences for their work to improve how auctions work.
Paul R. Milgrom and Robert B. Wilson were honored “for improvements to auction theory and inventions of new auction formats,” said Secretary-General Goran Hansson for the Royal Swedish Academy
“This year’s laureates have studied how auctions work and 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,” the committee said in a statement.
Using auction theory, researchers try to understand the outcomes of different rules for bidding and final prices, the auction format. The analysis is difficult, because bidders behave strategically, based on the available information. They take into consideration both what they know themselves and what they believe other bidders to know.
Robert Wilson developed the theory for auctions of objects with a common 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 analysed 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.
In 1994, the US authorities first used one of their auction formats to sell radio frequencies to telecom operators. Since then, many other countries have followed suit.
“This year’s Laureates in Economic Sciences started out with fundamental theory and later used their results in practical applications, which have spread globally. Their discoveries are of great benefit to society,” says Peter Fredriksson, chair of the Prize Committee.
The prize, called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of the Nobel awards to be announced this year. Last week, five Americans were among the Laureates to receive prizes in medicine, physics, chemistry and literature.
The coveted Nobel Peace Prize was awarded on Friday to the United Nations World Food Programme for its efforts to combat hunger and food insecurity around the globe.
The economics prize has been given to 84 individuals between 1969 and 2019. Only two women have been recipients to date. Laureates are presented with a Nobel diploma and medal, and share the prize money of 10 million Swedish kronor (more than $1.1 million).