2 STANFORD ECONOMISTS WIN NOBEL FOR AUCTION THEORIES

Two American economists, Paul R. Milgrom and Robert B. Wilson, were awarded the Nobel Memorial Prize in Economic Sciences on Monday for improvements to auction theory and inventions of new auction formats — innovations that have had huge practical applications when it comes to allocating scarce resources.

The pair, close collaborators who are both affiliated with Stanford University, have pioneered new auction formats that governments have since used to auction off radio frequency.

“They haven’t just profoundly changed the way we understand auctions — they have changed how things are auctioned,” said Alvin E. Roth, a Nobel laureate himself who was one of Wilson’s doctoral students. “The two of them are some of the greatest theorists living in economics today.”

Auctions help to sell a variety of products, including art, minerals and online advertising. They can also take on various characteristics: Objects can have a shared, common value for all bidders (such as commodities like oil) or private values that vary across bidders (like art). Bidders may know exactly what the object’s value is, or they may have imperfect information. Bids can be open, meaning everyone can see them, or closed.

Wilson “was the first to create a framework” for auctions of items with a common value, according to the prize committee. In his work, he explained that bidders will offer less than they think the object or service is worth because they are afraid of overpaying — the winner’s curse — even more acutely when they are at an information disadvantage.

Milgrom found that people underbid by less in socalled English auctions, in which prices start low and are raised, than in Dutch auctions, where they start high and are reduced.

Yet the pair’s “bestknown contribution,” according to the committee, is their work in designing new auction formats for complex situations, including the format that governments now use to allocate radio frequencies to telecom operators.