2 Stanford economists honored

Professors recognized for helping to make auctions more efficient

Auctions are everywhere in today ’s economy. They determine how Google sells ads, what price consumers pay for electricity, and the way governments sell off the public airwaves to telecom companies and broadcasters.

For helping make auctions run more efficiently, two Americans on Monday won the Nobel prize for economics.

The discoveries of Paul R. Milgrom and Robert B. Wilson, both of Stanford University, “have benefited sellers, buyers and taxpayers around the world,” the Nobel Committee said.

Wilson, 83, was once Milgrom’s PH.D. adviser. They are neighbors. Milgrom, 72, said he received the news “in a strange way.” “I got a knock at my door from Bob Wilson,” he said.

Security camera footage at Milgrom’s home captured the moment. Wilson knocked on Milgrom’s door in the dead of night and spoke into the intercom. “Paul,” he said. “It’s

Bob Wilson. You’ve won the Nobel Prize.” Awakened, Milgrom stammered for a moment and then said: “Wow.”

The two men tackled the tricky problem of making auctions work efficiently. The committee said Wilson’s work showed “why rational bidders tend to place bids below their own best estimate of the com

mon value” — which could mean the item goes for less than it’s worth and perhaps not to the buyer who most wants it, neither of which is supposed to happen if the auction is working properly.

“Auctions ask and answer the most fundamental questions in economics: Who should get the goods and at what prices?” said economist Peter Cramton, a former student of Wilson’s now at the University of Maryland and the University of Cologne in Germany. The winners’ work provides guidance about “how to price and allocate scarce goods.”

The effects of their work can be seen all around.

“Online advertising is sold at auction,“said David Warsh, who tracks economic research at Economic Principals. “That Google was able to adopt the method so quickly depended entirely on theory developed by Milgrom and his competitors and their students.”

Andrew Brodhead / AP Robert Wilson, left, and Paul Milgrom, both professors at Stanford, won the Nobel Prize in Economics for improving how auctions work.