THE NOBEL PRIZE FOR ECONOMICS 2020
THE CHAIR OF THE PRIZE COMMITTEE SAID,” 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.”
Paul Milgrom and Robert Wilson, the Americans won the Nobel Prize For Economics “ for improvements to auction theory and inventions of new auction formats.“ The Nobel Prize For Economics is technically known as Sveriges Riksbank Prize in Economic Sciences.
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.
Wilson developed the theory for auctions of objects with a common value – a 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. Wilson showed why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner’s curse – that is, about paying too much and losing out.