Nobel Prize in Economics goes to Paul R Milgrom and Robert B Wilson for improvements to auction theory

The 2020 Nobel Prize in Economic Sciences has been awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”

The Nobel Prize Committee took to Twitter to announce the winner: "The 2020 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to Paul R. Milgrom and Robert B. Wilson 'for improvements to auction theory and inventions of new auction formats'.”

“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.

Robert Wilson, awarded this year’s Prize in Economic Sciences, 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.

2020 Economic Sciences Laureate 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.

This year’s Economic Science Laureates -- Paul Milgrom and Robert Wilson -- have not just clarified how auctions work and why bidders behave in a certain way, but used their theoretical discoveries to invent entirely new auction formats for the sale of goods and services.

Few facts about this year’s Laureates

• Paul R. Milgrom, born 1948 in Detroit, USA.
• Ph.D. 1979 from Stanford University, Stanford, USA. Shirley and Leonard Ely Jr. Professor of Humanities and Sciences, Stanford University, USA.
• Robert B. Wilson, born 1937 in Geneva, USA.
• D.B.A. 1963 from Harvard University, Cambridge, USA. Adams Distinguished Professor of Management, Emeritus, Stanford University, USA.

What you need to know about the 'Auction theory'

The outcome of an auction (or procurement) depends on three factors -- the first is the auction’s rules, or format. Are the bids open or closed? How many times can participants bid in the auction? What price does the winner pay – their own bid or the second-highest bid? The second factor relates to the auctioned object. Does it have a different value for each bidder, or do they value the object in the same way? The third factor concerns uncertainty. What information do different bidders have about the object’s value?

Using auction theory, it is possible to explain how these three factors govern the bidders’ strategic behaviour and thus the auction’s outcome. The theory can also show how to design an auction to create as much value as possible. Both tasks are particularly difficult when multiple related objects are auctioned off at the same time. This year’s Laureates in Economic Sciences have made auction theory more applicable in practice through the creation of new, bespoke auction formats.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded 51 times to 84 Laureates between 1969 and 2019.

The Nobel prize, which consists of a gold medal, a diploma and a cheque for 10 million Swedish kronor ($1.1 million, 950,000 euros), will be shared equally between the Laureates.

In 2019, colleagues and married couple Esther Duflo and Abhijit Banerjee received the news that they had been awarded the 2019 Prize in Economic Sciences. They became the fifth couple to share a prize.

Nobel Prize 2020 winners

This year's ceremony has been scaled down due to the novel coronavirus pandemic.

• On Monday, the Nobel Committee awarded the prize for physiology and medicine for discovering the liver-ravaging hepatitis C virus.
• Tuesday's prize for Physics honoured breakthroughs in understanding the mysteries of cosmic black holes.
• Emmanuelle Charpentier of France and Jennifer Doudna of the US shared the chemistry prize on Wednesday.
• On Thursday, American poet Louise Gluck won the literature prize for her “candid and uncompromising" work.
• On Friday, the Nobel Peace Prize for 2020 has been awarded to the Nobel Peace Prize 2020 awarded to World Food Programme (WFP).