Paul Milgrom and Robert Wilson have been honoured with the Nobel prize for economics for their work on auction theory.
Professor Milgrom visited the University of Cambridge Faculty of Economics to give the Marshall Lecture in 2019, when he explained how the tools of game theory were applied to auctions.
Dr Matthew Elliott from the Faculty of Economics adds “they made foundation contributions to game theory, and our understanding of how markets can be made to work well. Professor Milgrom’s Marshall Lecture at the faculty drilled down into how ideas from computer science and economics can be brought together to design better auctions.”
Milgrom and Wilson made pivotal advances in auction theory, moving the theory closer to many more actual settings. For example, understanding how auctions perform when the value of the object being auctioned to different bidders has a common value component as well as a private value one. If you bid at an auction for a painting, only you know the ‘value’ you place on hanging it on your wall, but you will also consider how much it is worth to others because that affects its resale value.
Dr Elliott explains further “Milgrom and Wilson helped develop new auction formats for real world settings where there are many items, and their value is interrelated. They have been instrumental in getting governments to use auctions instead of procurement, and those auctions have enabled governments to raise huge amounts of revenue around the world.”
Milgrom and Wilson went on to develop the 1994 ‘Simultaneous Multiple Round Auction’ for radio spectrum, which is now the defacto standard for mobile phone frequency auctions worldwide. “The vast revenues that governments have raised by auctioning off 5G spectrum can be directly related back to their work”, says Dr Elliott.
He adds that the Marshall Lecture gave valuable insights. “Auctions are used every day for everything from gilts to minerals, fish to the adverts seen on the webpages of search engines. We were honoured to have him visit Cambridge and explain his research. As a graduate student I took classes taught by both. I’m delighted that they have won this year’s Nobel prize.”
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