The 2020 Nobel Prize in Economic Sciences has been awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”
Their contributions:
Robert 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.
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.
What you need to know about the ‘Auction theory’?
The outcome of an auction (or procurement) depends on three factors:
Auction’s rules, or format.
Highest bid.
Uncertainty.
Using auction theory, it is possible to explain how these three factors govern the bidders’ strategic behaviour and thus the auction’s outcome.
The theory can also show how to design an auction to create as much value as possible.
Nobel Prize in Economics:
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded 51 times to 84 Laureates between 1969 and 2019.
The Nobel prize consists of a gold medal, a diploma and a cheque for 10 million Swedish kronor ($1.1 million, 950,000 euros).