Stanford University professors Paul R. Milgrom and Robert B. Wilson were awarded the 2020 Nobel Memorial Prize in Economic Sciences "for improvements to auction theory and inventions of new auction formats," the Royal Swedish Academy of Sciences said in a news release.
"This year's Laureates, Paul Milgrom and Robert Wilson have studied how auctions work," the academy said Monday in the release. Adding that their "discoveries have benefited sellers, buyers and taxpayers around the world."
Although Messrs. Milgrom and Wilson are best known for designing the auction of U.S. government-owned radio spectrum to cell phone network operators, Bruce I. Jacobs, principal at Jacobs Levy Equity Management, said in an email that "their insights have been applied around the world to the sale of everything from airport landing slots to government bonds."
"While the popular conception of auctions is of a fast-talking auctioneer coaxing ever higher prices for a work of art or an exotic car from a crowd of bidders ... auctions, particularly of high-priced publicly owned resources, can be complex, have many formats and turn on a variety of variables," Mr. Jacobs added.
Mr. Milgrom applied auction theory to analyze securities markets trading. In one academic paper he wrote with Nancy Stokey, Mr. Milgrom "proposed the 'no-trade theorem,' which posits that, in a perfectly efficient market with rational investors, no trade will take place when one trader receives new private information because the other traders will infer that trading will result in losses for them," Mr. Jacobs said.
Mr. Jacobs added that in another paper, written with Lawrence R. Glosten, "Milgrom applied work on auction markets to explain how market makers create a bid-ask spread (different prices for buyers and sellers) to recoup losses from trades with informed traders who may have superior information."
"There are times that I have ideas and people think, 'That's too novel, that's crazy, we're not going to try that,'" Mr. Milgrom said in a news release issued by Stanford University. "But I think that one of the effects of a prize like this is that people will pause before rejecting. They'll take things more seriously, and that will help me make novel things happen."
In the same release, Mr. Wilson called the work that he and Mr. Milgrom did together "very exciting," and added: "I'm very happy to share this acknowledgment with him."