Nobel prize economy to researchers of auctions

Researchers at auctions have won the Nobel Prize for Economics this year. The honor went to the two Americans Paul Milgrom and Robert Wilson. Together, they get almost EUR 1 million to distribute among themselves.

The two examined how auctions work and developed new models for auctions themselves. For example, for the sale of goods and services that are difficult to auctioned, such as radio frequencies.

โ€œ Nowadays, objects worth astronomical sums exchange hands daily in auctions. Not only household items, art and antiques, but also effects [financial products, red], minerals and energy. Public procurement can also be carried out as an auction,โ€ says the commission that deals with the price in the explanatory statement.

The Winners Curse

With their research, Milgrom and Wilson tried to understand the effect of different rules for auctions. A complicated matter, according to the committee, because bidders act strategically. They act not only on the information they own, but also on what they think other bidders know.

For example, Wilson took a closer look at auctions where the price of what is being auctioned is uncertain beforehand, but the same for everyone afterwards. This is often the case, for example, when distributing radio frequencies or buying up minerals in the soil.

The 1937-born American, who is now emeritus professor at Stanford University in the US, showed why rational bidders generally offer lower than what they themselves think is value. They are afraid of the โ€œwinners curseโ€: that although they win the bid, they pay too much and therefore actually lose.

His co-winner Milgrom, born in 1948, is also a professor at Stanford University. He discovered that a seller will raise more money at auction if the potential buyers know how much they estimate what they bid on is worth while bidding.

Both have invented new models for auctions that, for example, governments can apply. The models offer a seller who does not go for the highest price but for the broad social interest the possibility of auctioning several related items at the same time. This type of auctions has been used, for example, in the distribution of slots at airports for landing, and thus in the distribution of radio frequencies.

Of great social interest

โ€œ This years winners started with fundamental theories and later applied them into practice,โ€ explains Peter Fredriksson, chairman of the committee for the prize. โ€œThose applications have been used all over the world. Their discoveries have had great added value for society.โ€

The Nobel Prize for Economics is in fact not a real Nobel Prize. Officially, the prize is called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, in memory of Alfred Nobel. It was not added to the five existing categories until 1969, in honour of the 300th anniversary of the Swedish Central Bank.