Americans Paul R. Milgrom and Robert B. Wilson, both academics from Stanford University, have won the Nobel Prize in Economics and will split the $1.1 million prize for "improvements to auction theory and inventions of new auction formats." Technically known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award was established in 1969 and is now widely considered one of the Nobel prizes. The winners were announced Monday in Stockholm, capping a week of Nobel Prizes at a time when much of the world is experiencing the worst recession since World War II because of the impact of the coronavirus pandemic, the AP reports. The discoveries of Milgrom and Wilson "have benefited sellers, buyers, and taxpayers around the world," the prize committee said in a statement, per NBC News.
In auction theory, researchers undertake a complicated analysis to try to figure out what the outcomes will be in an environment with differing bidding rules. Wilson is being recognized for his development of auction theory involving objects with a "common value"—a value that's "uncertain beforehand but, in the end, is the same for everyone," such as the future value of minerals in a particular area. Using this theory, he illustrated why bidders afraid of the "winner's curse"—paying too much—will tend to bid less than what they think the common value is. Milgrom developed auction theory that also involved "private values," which differ among bidders. He showed that when bidders know more about other bidders' estimated values, the seller tends to receive higher expected revenue. NBC notes that, of the 84 winners of the Nobel in Economics since its inception, only two have been women. (Read more Nobel Prize in Economics stories.)