Nobel Prize in Economics 2020
- Posted By
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:
- Auction’s rules, or format.
- Highest bid.
Using auction theory, it is possible to explain how these three factors govern the bidders’ strategic behavior and thus the auction’s outcome.