Going once. Going twice.
Auctions are at the heart of this year's Nobel Memorial Prize in Economic Sciences. The winners — Stanford University professors Paul Milgrom and Robert Wilson — were recognized "for improvements to auction theory and inventions of new auction formats."
They designed the auction the FCC used to sell radio spectrum to wireless telephone companies, raising more than $120 billion for something the government used to give away for free.
"Auctions are everywhere and affect our everyday lives," the prize committee said in a statement. Milgrom and Wilson's work "benefit[s] sellers, buyers and taxpayers around the world."
Many of the questions in auction theory revolve around information. Do bidders know what competitors are bidding? Do they all put the same value on the item being auctioned?
The committee recognized Milgrom and Wilson not only for their basic research into the behavior of auction participants, but for their application of those findings to design better auctions.
Auctions are now used to price all kinds of things including Internet ads, wholesale electricity, fishing permits and carbon pollution credits.
Despite his groundbreaking work, Wilson acknowledged he's generally not much of an auction buyer.
"My wife points out to me that we bought ski boots on eBay," Wilson told reporters after being awakened for a news conference at 3 a.m. California time. "I guess that was an auction."
The Prize in Economic Sciences was established in 1968 by the Sveriges Riksbank, Sweden's central bank, to mark its 300th anniversary. It was first awarded in 1969, joining the five original prizes established by Alfred Nobel in his 1895 will.
Like the winners in physics and chemistry, the laureates in economic sciences are selected by the Royal Swedish Academy of Sciences in Stockholm. The prize brings with it a gold medal and a cash award, which this year is 10 million Swedish krona ($1.12 million) and will be shared by Wilson and Milgrom.
RACHEL MARTIN, HOST:
Going once, going twice - auctions are at the heart of this year's Nobel Prize in economics, and the winners are a pair of professors from Stanford. Paul Milgrom and Robert Wilson were recognized for their work in understanding how auctions work and for making them work better. NPR's economics correspondent Scott Horsley is with us. Hey, Scott.
SCOTT HORSLEY, BYLINE: Good to be with you, Rachel.
MARTIN: All right. So you say auctions and I think cattle. And I think an auctioneer saying, you know...
MARTIN: ...Hummana-hummana (ph), 500 (unintelligible).
HORSLEY: Yeah, there you go. There you go.
MARTIN: I mean, I'm guessing you're going to tell me their work, these economics - this economics work is much broader than that.
HORSLEY: Rachel, there are all different kinds of auctions, from the cattle auction you described to the fancy art auctions where people wave the little paddles and the high bidder gets the painting.
MARTIN: Yeah, got it.
HORSLEY: There's government auctions where the job goes to the low bidder, auctions where the bids are secret, auctions where everybody can see what the other bidders are doing. A lot of the questions in auction theory revolve around what kind of information the different players have. Do they all put the same value on the item being auctioned, or do they attach different values to it? If a government's auctioning off drilling rights, for example, how much do different oil companies know about what's underneath the ground?
Milgrom and Wilson's work addresses those questions in a way that helps both buyers and sellers. And the Nobel Prize committee noted their work is not just theoretical. In the early 1990s, for example, the FCC used their auction design to sell off radio spectrum that's now used by wireless phone carriers around the country. And that raised a ton of money for the government, and it's now been - that example has now been copied by other countries.
MARTIN: So give us some more examples of how auctions are used in a modern economy.
HORSLEY: Well, they're all around us, although often not visible. The ads you see when you're surfing the Internet, those were likely sold at auction by Google or another search engine. Wholesale electricity is bought and sold every day in an auction, and that helps to affect the rates you pay for your electricity. Various plans for addressing climate change rely on auctions to allocate pollution permits. Tommy Anderson, who was a member of the Nobel Prize Committee, says all these auctions have been improved by the work of Milgrom and Wilson.
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TOMMY ANDERSON: Trained analysis can today design new auction formats. And practitioners can choose more wisely among existing auction formats to the benefit of the buyers, the sellers, the end users, the taxpayers and the society as a whole.
MARTIN: So the prize for this award, just over a million dollars, which is pretty healthy pocket of change - have the winners said what they're going to do with it?
HORSLEY: Not yet. Professor Wilson was woken up very early in California for this announcement. The news conference came about 3 o'clock in the morning his time. And he told a reporter he hadn't given any thought to how he might spend the money. He was also asked about the last thing he'd bought at auction, and Wilson conceded he's not really much of an auctiongoer.
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ROBERT WILSON: My wife points out to me that we bought ski boots on eBay. I guess that was an auction.
HORSLEY: He did say, when asked again about how he might spend the money, he said, you know, with the pandemic, there's not a lot of opportunities to travel right now, so he'll probably just save it. In fact, the traditional award ceremony in Stockholm is not being held this year.
MARTIN: All right. NPR's Scott Horsley with the news of the Nobel Prize in economics winners. Thanks, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.