Nobel Economics Laureates Milgrom and Wilson, Masters of Auction Theory... Their Special Bond and Personalities Are 'Poles Apart'

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[Sejong=Asia Economy Reporter Kim Hyunjung] Paul Milgrom and Robert Wilson, professors at Stanford University in the United States and this year’s Nobel Prize in Economic Sciences laureates, are regarded as masters of the field of auction theory, a branch of economics. They are praised for their dedication to determining the most efficient design of auctions and connecting theory to various practical applications. Their special mentor-mentee relationship and contrasting personalities are also widely discussed.

On the 12th (local time), the Royal Swedish Academy of Sciences announced that Paul Milgrom and Robert Wilson, professors at Stanford University, were selected as the 2020 Nobel Prize in Economic Sciences laureates. The Nobel Committee stated, "Auctions take place everywhere and affect our daily lives," adding, "Milgrom and Wilson improved auction theory and invented new auction formats that have benefited sellers, buyers, and taxpayers worldwide."

Both laureates, currently still at Stanford University, deepened auction theory during the 1960s and 1970s by analyzing the behavior of auction participants depending on the situation and studying the characteristics of various auction types. They especially focused on designing auctions to achieve efficient outcomes. The new auction formats they devised are currently used in allocating wireless frequency bands, fisheries and airplane landing slots, and carbon emission trading.

Their research is also credited with laying the foundation for the development of modern mobile communications. In particular, they played a decisive role in the success of the 1994 Federal Communications Commission (FCC) auction of frequencies to mobile carriers, which led to the establishment of a nationwide communication network and the subsequent growth of the mobile communications industry and information technology (IT) sector. The FCC, which had previously allocated frequencies on a first-come, first-served, comparative, or lottery basis, was able to secure significant tax revenue through this method.

Their relationship began when Milgrom, who majored in mathematics in Michigan and came to Stanford to pursue a master's degree in business administration, caught the eye of his mentor, Professor Wilson. Wilson, who saw high potential in Milgrom as a scholar rather than a businessman, encouraged him to enter the doctoral program and nurtured him as a student. In 1982, Milgrom gained attention with a paper that synthesized independent private value auctions and common value auctions.

The first Nobel Prize awarded for auction theory was to William Vickrey in 1996, who used game-theoretic analytical methods. It is known that platforms like eBay still use related methods for conducting auctions. Professor Wilson is distinguished by expanding the scope of auctions, which in the 1960s focused only on independent private values, to include multiple auctions and common value recognition. Professor Milgrom focused on bidders’ individual valuations and concluded that when the number of bidders becomes infinite, the "winner’s curse" can be mitigated.

Although they share auction theory as a common denominator, their personalities were polar opposites. Professor Kim Jung-yoo of Kyung Hee University’s Department of Economics, who attended lectures by both professors, recalled, "Professor Wilson was always encouraging to his students, offering constructive advice and connecting various studies?in short, he was a ‘good-natured person.’ Professor Milgrom was a strict and demanding scholar with many requirements and very high standards." He added, "In terms of teaching style, Wilson presented the big picture and allowed students to learn selectively, whereas Milgrom preferred details and the latest techniques, conducting very thorough lectures."

Meanwhile, the Nobel Prize in Economic Sciences was established in 1968 by the Swedish central bank, which donated funds to the Nobel Foundation in memory of Alfred Nobel, the founder of the Nobel Prizes. The prize has been awarded since the following year. The two laureates will share a prize of 10 million Swedish kronor (approximately 1.27 billion Korean won).

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