The work of the two economists was used, in particular, in the assignment of telecommunications frequencies. The prize, in memory of Alfred Nobel, is awarded to them for “improving auction theory and inventing new auction formats,” said the jury.
Wilson developed a theory for the auction of objects with a common value (the one that is uncertain before the auction but the same for all at the end): examples are the value of radio frequencies or the volume of a mineral in a given area. Wilson showed how rational pointers tended to bid below their highest estimate for the common value: they are concerned about the winner’s curse, which is to pay too much and essentially lose.
Milgrom has formulated a more general theory on auctions that not only regulates common values but also so-called private values, that is, which vary from buyer to buyer. He analyzed bidding strategies in a number of well-known auction formats, showing that the format gives the seller higher revenue when the bidder knows more about the value attributed by other buyers.
“This year’s winners – explains the jury – started with the fundamental theory and used their results in practical applications, which have spread all over the world. Their discoveries have brought great benefits to society ”.