Alumnus Robert B. Wilson and Paul Milgrom Share 2020 Nobel Prize in Economics
Robert B. Wilson ’59, M.B.A. ’61, D.B.A. ’63, and his former Stanford doctoral student Paul R. Milgrom have been awarded the 2020 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel “for improvements to auction theory and inventions of new auction formats.” Wilson is Adams Distinguished Professor of management emeritus at Stanford, where he joined the faculty in 1964. Milgrom is Ely professor of humanities and sciences at Stanford.
In its press release, the Nobel committee stated: “This year’s Laureates, Paul Milgrom and Robert Wilson, have studied how auctions work. They have also used their insights to design new auction formats for goods and services that are difficult to sell in a traditional way, such as radio frequencies. Their discoveries have benefitted sellers, buyers and taxpayers around the world.”
Robert Wilson developed the theory for auctions of objects with a common value – a value which is uncertain beforehand but, in the end, is the same for everyone. Examples include the future value of radio frequencies or the volume of minerals in a particular area. Wilson showed why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner’s curse – that is, about paying too much and losing out.
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. He analysed the bidding strategies in a number of well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other’s estimated values during bidding.
Wilson is the second member of the University community to receive Nobel honors this year, after Jennifer Doudna, Ph.D. ’89, shared the Nobel Prize in chemistry last week. Among his other credentials, he has served as an affiliated faculty member of Harvard Law School’s Program on Negotiation. Williston professor of law Robert Mnookin, director of the Harvard Negotiation Research Project, worked with Wilson at Stanford years ago and has described him as someone from whom he learned “how the insights of economics, social psychology, cognitive psychology, and game theory could all provide useful prisms for better understanding negotiation.”