ANN ARBOR – University of Michigan alumnus Paul Milgrom was awarded this year’s Nobel Prize in Economic Sciences.
Milgrom, who graduated in 1970 with a bachelor’s in mathematics, was recognized with the prestigious international award for his work in improving auction formats.
His research with colleague and fellow prize-winner Robert Wilson focuses on auction theory, an applied branch of economics that focuses on both people’s behavior in auction markets and properties of these markets.
Using auction theory, the duo designed new auction formats for buying and selling nonphysical goods like radio frequencies.
✉ Like what you’re reading? Sign up for our email newsletter here!
The moment Milgrom found out he won the Nobel Prize was captured on his home security system. Aside from being research partners, Milgrom and Wilson are also neighbors, and when Milgrom wasn’t answering the phone, Wilson and his wife walked to Milgrom’s house in the middle of the night to deliver the news in person.
“I had to come over and knock on the door in my pajamas to wake him up,” Wilson told The Guardian.
Analyzing auction formats can be challenging because bidders make unilateral, calculated decisions based on the value of what they are bidding on.
“People have always sold things to the highest bidder, or bought them from whoever makes the cheapest offer,” the academy said. “Nowadays, objects worth astronomical sums of money change hands every day in auctions, not only household objects, art and iniquities, but also securities, minerals and energy.”
Milgrom designed an auction theory that considers both private and common values of auction markets, which change depending on the bidder. To do so, he analyzed bidding patterns from some of the most well-known auction formats and demonstrated that a seller will make more money in a specific auction format when bidders become aware of each other’s estimated values during the bidding process.
Milgrom and Wilson’s research addressed markets which deal with intangible goods like television or radio addresses on the airwaves or landing slots for planes at airports. Milgrom was a central academic player in the Federal Communications Commission’s 1994 decision to auction broadcast licenses rather than to allot them via a lottery.
“This year’s Laureates in Economic Sciences started out with fundamental theory and later used their results in practical applications, which have spread globally,” said Peter Fredriksson, chair of the Prize Committee, in a news release. “Their discoveries are of great benefit to society.”
A Detroit native, Milgrom was born in 1948. He is currently a professor in Stanford University’s Department of Economics. The award comes with a $1.1 million prize that the laureates will share equally.