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Nobel Prize in Economics 2020

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  • Published
    14th Oct, 2020
  • Awarded to Paul R. Milgrom and Robert B. Wilson.
  • For improvements to auction theory and inventions of new auction formats.
  • Robert Wilson showed why rational bidders tend to place bids below their own best estimate of the commonvalue: they are worried about the winner’s curse – that is, about paying too much and losing out.
  • Laureate Paul Milgrom formulated a more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder.
    Auction theory:The outcome of an auction (or procurement) depends on three factors:
    1. Auction’s rules, or format.
    2. Highest bid.
    3. Uncertainty.

Using auction theory, it is possible to explain how these three factors govern the bidders’ strategic behavior and thus the auction’s outcome.

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