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Stanford economists awarded Nobel Prize for work on auction theory

Stanford economists awarded Nobel Prize for work on auction theory

Stanford University professors Paul Milgrom and Robert Wilson have been awarded the 2020 Nobel Prize in economics for esoteric insights that have brought order to the power grid, mineral rights and other critical but complex parts of our economy.

Their discoveries pioneered a new approach to how auctions work – and now serve as the conceptual underpinning of bids for services that are difficult to sell in a traditional way, such as bands of radio spectrum and cell service licenses.

Their strategy can be used to improve the allocation of respirators and Personal Protective Equipment in future pandemics. In the early days of the COVID-19 crisis, states bid against each other for supplies, escalating prices and creating chaos.

When the Federal Communications Commission takes bids to allocate radio spectrum for fiercely competitive telecommunication licenses – cell phone rights in northern and southern California markets, for example – it enlists Milgrom’s and Wilson’s strategy.  This approach has been adopted in countries around the world.

“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,” Peter Fredriksson, chair of the Nobel prize committee, said in a statement.

Neighbors on campus, the two long-time friends and collaborators were startled by Monday morning’s news. Wilson, professor emeritus at the Stanford Graduate School of Business, was Milgrom’s mentor. Milgrom is a professor in the university’s School of Humanities and Sciences.

Wilson’s phone ringer was on ‘silent’ mode, so the Nobel committee called his wife instead. Milgrom, sound asleep, was also incommunicado.

In the predawn darkness at 2:15 a.m., Wilson and his wife Mary crossed the street and repeatedly rang the video-activated doorbell to awaken Milgrom. The drama is recorded on Milgrom’s Nest home security

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2 U.S. Economists Awarded Nobel Memorial Prize in Economic Sciences : NPR

2 U.S. Economists Awarded Nobel Memorial Prize in Economic Sciences : NPR

The Nobel Prize gold medal during manufacture at the Swedish Mint. Each laureate receives the medal, which has the likeness of Alfred Nobel on its face.

Markus Marcetic/Courtesy of Myntverket (Swedish Mint)

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Markus Marcetic/Courtesy of Myntverket (Swedish Mint)

The 2020 Nobel Memorial Prize in Economic Sciences was awarded to Paul Milgrom and Robert Wilson, both of Stanford University. The prize citation says Milgrom and Wilson were awarded the prize “for improvements to auction theory and inventions of new auction formats.”

“Auctions are everywhere and affect our everyday lives.” the prize committee said in a statement. Milgrom and Wilson’s work “benefit[s] sellers, buyers and taxpayers around the world.”

The Prize in Economic Sciences was established in 1968 by the Sveriges Riksbank, Sweden’s central bank, to mark its 300th anniversary. It was first awarded in 1969, joining the five original prizes established by Alfred Nobel in his 1895 will.

Like the winners in physics and chemistry, the laureates in economic sciences are selected by the Royal Swedish Academy of Sciences in Stockholm. The prize brings with it a gold medal and a cash award which this year is 10 million Swedish krona ($1.12 million), which will be shared by Wilson and Milgrom.

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