U.S. academics Paul Milgrom and Robert Wilson won the 2020 Nobel Economics on Monday for work on auctions hailed as benefiting buyers and sellers around the world of everything from fishing quotas to aircraft landing slots.
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.
"Auctions are everywhere and affect our everyday lives. This year's Economic Sciences Laureates, Paul Milgrom and Robert Wilson, have improved auction theory and invented new auction formats, benefiting sellers, buyers and taxpayers around the world," the Nobel Prize's official website tweeted.
Milgrom was born in Detroit to Jewish parents. He became the Shirley and Leonard Ely Professor of Humanities and Sciences at Stanford University, and frequently lectures at Israeli universities.
He and Wilson notably came up with formats for selling interrelated items simultaneously. In 1994, U.S. authorities used one of their auction designs to sell radio frequencies to telecom operators, a move since copied in other countries.
Wilson showed that rational bidders tend to place bids below their own best estimate of what he called the "common value" - that is, when the value of an item is deemed to be the same for everyone - for fear of paying too much.
Milgrom complemented that with theories on "private values", when the perceived value of something differs from bidder to bidder.
He demonstrated that an auction format will give the seller higher expected revenue when bidders learn more about each other's estimated values during the bidding process.
Speaking to reporters in Stockholm by phone after learning of his win, Wilson struggled to think of an auction he himself had participated in. But then added: “My wife points out to me that we bought ski boots on eBay. I guess that was an auction.”
The economics prize, won by such luminaries as Paul Krugman and Milton Friedman in the past, was the final of the six awards in 2020, a year in which the Nobels have been overshadowed by the COVID-19 pandemic.
The traditional gala winners' dinner in December has been canceled and other parts of the celebrations are being held digitally to avoid the risk of spreading the infection.
The Nobel prizes for medicine, physics, chemistry, literature and peace were handed out last week.
The 10-million-Swedish-crown ($1.14 million) economics prize is not one of the original five awards created in the 1895 will of industrialist and dynamite inventor Alfred Nobel, but was established by Sweden's central bank and first awarded in 1969.
The Norwegian Nobel Committee plans to go ahead with an award ceremony, albeit in a reduced format due to the coronavirus pandemic, in Oslo on Dec. 10, the anniversary of the death of Alfred Nobel.