Two American economists, Paul Milgrom, and Robert Wilson, who are game theory experts and professors at Stanford University, were declared the winners of the Nobel Prize for Economics for the year 2020 for their contribution to the auction theory. The prize is officially known as Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

In game-theory, the ways in which interacting choices of economic agents produce an outcome with regards to the utilities or preferences of the agents are studied. The Royal Swedish Academy of Sciences stated that the contributions of this year’s winners have helped in a better understanding of the functioning of auctions especially in the formats of goods and services.  There are some goods and services like radio frequencies which are problematic to sell through an auction in traditional style. They can be now better understood, described, and analyzed for auction processes. This is because of the works of Milgrom and Wilson. Their works had been based on the basic ideas and theories and have been later used for practical applications. The applicable uses of their works have spread around the world.

The auction theory developed and took shape in the late 1970s and early 1980s. This included building of mathematical models which, to maintain a fair market, could bring in incentives and information in the auction bidding process, and prevent the collusion within the circle of bidders.

The discoveries and works of Milgrom and Wilson have led to the design of new formats of the auctioning of interrelated materials on behalf of a seller who is driven to do good for society rather than gathering the best price. In the UK, it came into prominence in the earlier part of this century. The UK government, with inputs from the work of the academician from the Oxford University, Paul Klemperer, had obtained large sums from phone service providers after the auction of spectrum for new mobile phones.

The work of the game theory duo had helped the US government, in 1994, to sell the radio spectrum in such a way that it was benefitting the tax-payers and at the same time the spectrum remained of high value for the network operators. Coincidentally, in the same year, 1994, an academic of the Princeton University, John Nash (another game theorist) had won the Nobel Prize in the same subject with two other people. Nash had developed the famous Nash equilibrium in game theory, which helps in analyzing situations of conflicts and cooperation and allows in giving predictions about how the people will behave. The Nash equilibrium in auctioning helps in the process of First- price sealed-bid auction. This situation in the auction is generally identified as the Bayesian game, in which the challenge becomes to find a Bayesian Nash Equilibrium.

The work of the duo of Milgrom and Wilson and John Nash has allowed arriving at such a situation in an auction where all the stakeholders can benefit from their participation in the auction process.

The declaration of the Economics prize comes after the announcement of the World food program as the winner of the Nobel Peace prize for 2020. Last year the Nobel Prize in economics was awarded to Abhijit Banerjee, Esther Dunflo, and Michael Kremer for their works which have been helping in the alleviation of global poverty.