This year's Laureates are rewarded for their research on auction theory
This year's Laureates are rewarded for their research on auction theory, which has gained practical significance for example when states are selling radio frequencies.

The Prize in Economic Sciences: "Research with practical significance that everyone benefits from"


The Prize in Economic Sciences 2020 is awarded to the Americans Paul Milgrom and Robert Wilson, who 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.

Johan Stennek, professor i nationalekonomi
Johan Stennek

”One thing I think is gratifying with the choice of Laureates is that their research started as abstract basic research, and have then gained great practical significance. For example for how the state proceeds when it sells certain assets, such as in the upcoming 5G auctions in Sweden, but also how the state buys services such as road maintenance. That is, how to organize government procurement and sales to get the best possible services for as little tax money as possible?”, says Johan Stennek, professor of Economics at the School of Business, Economics and Law at the University of Gothenburg.

Using auction theory, researchers try to understand the outcomes of different rules for bidding and final prices, the auction format. The analysis is difficult, because bidders behave strategically, based on the available information. They take into consideration both what they know themselves and what they believe other bidders to know. Paul Milgrom has, among other things, 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.

”If you read Milgrom's essays, they contain extremely abstract and difficult mathematics – I really have to struggle to understand. The contrast between this basic research and the fact that it has concrete practical significance that everyone benefits from, is exciting”, says Johan Stennek.

Milgrom and Wilson have also invented formats to simultaneously auction off many interrelated items, on behalf of a seller motivated by broad societal benefit rather than maximal revenue.  In 1994, the US authorities first used one of their auction formats to sell radio frequencies to telecom operators. Since then, many other countries have followed suit.

”My impression is that the prize committee in recent years has emphasized practical applications more and more, as in last year's prize to development economics or in 2012, when it rewarded the study of market mechanisms where money can not be involved, as in organ donations”, says Johan Stennek.