Nobel Prize in Auctions
A few days ago, two professors at Stanford University won the Noble Prize for their work on something we are very familiar with in this class: auctions. Paul Milgrom and Robert Wilson worked together to analyze and better understand auctions that have common values or common and private values. A common value auction means that everyone bidding has the same value for the object, while a common and private value auction is where people know their value, but also consider the common value when choosing how much to bid. These researchers found that people are likely to bid under because they are afraid of paying more than they value the item. Additionally, they researched a new way to hold auctions, specifically auctions with radio frequencies. This method held several auctions at the same time among many different regions and brought in more money for the government.
This topic is extremely relevant to the material learned in this class because we learned about different auctions and analyzed the best options for bidding. Since there are many types of auctions, it is not always good to bid one’s true value. For example, in a first price auction, it is best for a bidder to bid less than their true value. However, in a second price auction, the bidder should bid their true value. In this article, these two professors discovered a new type of auction that takes into account that people are afraid of over bidding and maximizes revenue for the Federal Communications Commission as they run these bandwidth auctions. This research is innovative in the field of economics and may be a new type of auction that students in INFO 2040 learn about in years to come!