Oct. 12 (UPI) — Two American economists whose groundbreaking studies have to led to improvements in how auctions work were awarded the Nobel Prize in Economic Sciences in Stockholm Monday.
Paul Milgrom and Robert Wilson, both of Stanford University, were awarded the prize by the Swedish Academy of Sciences for their work in designing new auction formats for goods and services that are difficult to sell in a traditional way, such as radio frequencies and airport landing slots.
Their discoveries have benefited sellers, buyers and taxpayers worldwide, the academy 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,” Nobel Prize Committee chairman Peter Fredriksson said in a statement. “Their discoveries are of great benefit to society.”
The pair’s innovations led to new ways for sellers motivated by societal benefit to auction off interrelated objects simultaneously.
U.S. authorities first used the new format in 1994 to sell radio frequencies to telecom operators and many other countries later followed suit.
Specifically, Wilson developed a theory for auctions in which a common value is used when bidders are unsure of the items’ value beforehand. The system compensates for bidders’ tendency to bid too low in such situations for fear of the “winner’s curse” — that is, winning the auction but paying too much to do so.
Milgrom was recognized for developing an auction format for complex items with no agreed-upon value. He showed that his system yields more revenue for sellers when bidders learn more about each other’s estimated values during bidding.