The Royal Swedish Academy of Sciences has announced the Nobel Prize in Economic Science 2020 to Robert B. Wilson and Paul R. Milgrom.
In order to not just explain How Auction Works and Why Biders behave in a certain way but to also develop an entirely new Auction Format, the 2020 Sveriges Riksbank Prize in Economic Sciences in the Memory of Alfred Nobel has been awarded to Paul R. Milgrom and Robert B. Wilson.
Mr. Wilson and Mr. Milgrom, both live in the same street in California, USA. The 83 year old Mr. Wilson was born in Geneva, however, has got his Bachelor and Graduate Degree from Harvard University and now is a Professor emeritus at Stanford University. The 72 year old Mr. Milgrom was born in Detroit who completed his Graduate and Doctorate degree from Stanford University, where also he is now a Professor. Mr. Milgrom is also a doctoral student of Mr. Wilson.
This year’s Nobel Prize in Economic Science is all about avoiding the Winner’s Curse. So, let me first explain to you What Winner’s Curse is and maybe that way you understand Why both of these Scientists have been awarded the Nobel Prize.
What is Winner’s Curse?
The very simple definition is, The Winner’s Curse is a tendency for winning bids in an auction to exceed the true worth of an item. Let me explain it with a simple example: Suppose a seluler is auctioning a Jar full of coins and you are a bidder who wants to purchase the same Jar but don’t know the true value of it. So, in that case, you might pay high to win the bid and purchase the Jar. At last, of course you win the bid but you pay high for the item. This is called the Winner’s Curse. Now, Consider this if the Jar is made of a transparent glass and you can see the coins it contains. Now, with your expertise you can guess it’s value and can avoid the Winner’s Curse. Paul R. Milgrom and Robert B. Wilson have made it possible to build such a transparent Jar.
Read What the Nobel Prize in Economic Science 2020 is all about
Currently, Most of the things in the background which we don’t know about are running auctions. For example, While we are running browsers and visiting websites we see ads on it. Even in my websites ads are running, but did you know that to place these ads on my website a background auction is running. Similarly, we see auctions in action while selling electricity, Radio Spectrum and many other things. So, in simple terms, this year’s Nobel Prize in Economic Science is all about purchasing and selling items.