The Royal Swedish Academy of Sciences announced on Monday (12th) the 2020 Nobel Prize in Economics, which was won by American economists Paul R. Milgrom and Robert B. Wilson, praising them for improving auction theory and developing new ideas. The two will split the prize of 10 million Swedish kronor (about 4.71 million Ringgit).
The two winners
The two winners, Milgrom and Wilson, improved the auction theory and designed new auction formats for goods or services that are difficult to sell in traditional ways. For instance, the auction of the radio frequency spectrum, which has attracted global sellers and buyers. The two winners used to be a teacher-student relationship and are currently professors at Stanford University.
Paul R. Milgrom
The 72-year-old Milgrom was born in Detroit, USA. He obtained a doctorate in business from Stanford University in 1979 and now teaches at the School of Humanities of Stanford University. He is an expert in game theory, especially good at auction theory and pricing strategy. The 83-year-old Wilson was once the advisory professor of Milgron’s doctoral thesis. He received his PhD from Harvard Business School in 1963 and is now an emeritus professor of management at Stanford University School of Business.
Milgrom obtained a doctorate in business administration from Harvard in 1963. Wilson developed the theory of auctions of items with a common value. The theory states that this value is uncertain in advance, but in the end, each will be the same, for example, the future value of radio frequencies or the number of minerals in a specific area, etc.
Robert B. Wilson
Wilson shows why rational bidders tend to place the bid price below their best estimate of the common value because they worry about paying too much.
The statement pointed out that in the past, people always sold items to the highest bidder or bought from the lowest bidder. Today, astronomical items are changing hands in auctions every day, including household goods, art, antiques, securities, minerals, and energy. Public procurement can also be bid through auctions. Researchers use auction theory to try to understand the auction results and final prices under different bidding rules, which is the auction format. This kind of analysis is very difficult because bidders make strategic bids based on available information.
Wilson developed the theory of auctions of items with a common value. Moreover, which means that this value is uncertain beforehand, but in the end, it is the same for everyone. For example, the future value of the radio spectrum, or the number of minerals in a specific area, studies have shown that when reasonable bidders bid lower than they think, this is based on the consideration of the “Winner’s Curse”. That is to worry about over-bids and losing.
The benefits of the new theory
Based on these theories, they collaborated to develop a simultaneous multi-round auction system to ensure that public assets can be sold at reasonable prices, to protect warehouse income, and telecommunications companies can participate in trading fairly. Their theory was first applied to the US government’s auction of radio spectrum in 1993. At that time, the government put the radio spectrum in multiple regions for auction at one time. Moreover, other bidders’ bids and the final auction was more than US$600 million. In addition, this auction model is exported to other countries and is used in electricity and natural gas auctions.
Furthermore, the two scholars will share an average of 10 million Swedish kronor in bonuses. Which is equivalent to 8.797 million Hong Kong dollars.
More information about:
- US game theory specialists win Nobel prize in economics
- 2 Stanford economists win Nobel Prize for improving auctions