This year's Nobel Prize in Economics goes to Paul R. Milgrom and Robert B. Wilson for their research into auctions, it was announced Monday.

They both examined which auctions work best and used these insights to design new auctions.

Why is this research so relevant and does it deserve a Nobel Prize?

We asked Pieter Gautier, professor of economics at the department of general economics of VU University Amsterdam.

The Nobel Prize winners investigated which auctions work best in different situations and also developed new models for this.

Their insights have been applied in radio frequency auctions and government bonds.

What makes the research of Milgrom and Wilson, winners of this year's Nobel Prize in Economics, so special?

“Much was already known about auctions, Milgrom and Wilson also looked at auctions of products whose value was partly uncertain. and when you design an auction you have to take that into account. Milgrom and Wilson showed how you could do that. "

Why is the research of the Nobel Prize winners also socially relevant?

"A safe is a great way to find out what buyers are willing to pay for a product or service. After all, a bidder competes with other bidders and the one with the highest rating gets the product. When it comes to tenders, the alternative is that the The best lobbyers win and that is much less efficient. The research by Milgrom and Wilson also shows how the government can skim off monopoly profits through smart auctions. "

What are examples of auctions that the Dutch encounter in daily life?

"A good example is buying a house. When you bid on a house, you take into account both what appeals to you personally about the house, but also the market valuation because you have to sell the house again later. Wilson warned against the so-called 'curse of the winner': on average buyers estimate the value of a house well, but the winner is not the average bidder, the winner probably overestimated the value. This problem is greater in auctions where you place your bid in places an envelope because you cannot learn from the other bidders. "

A large part of the auctions now take place online.

How do you see the findings of the Nobel laureates here?

“The winners have not done much research on this themselves, but you can show that if sellers can choose how to sell a product - via a fixed price, negotiation or auction - and buyers can choose which seller to go to that auctions are optimal selling mechanisms. to be."

In the coming period, states or private parties may have to bid for rights to corona vaccines.

How do Milgrom and Wilson's models relate to this?

"

Both Milgrom and Roberts have also made many contributions to the design of markets. They have not looked directly at the vaccine market themselves, but Susan Athey who has a PhD at Milgrom has. A vaccine is very expensive to design but it is very expensive. that usually only one in ten is successful. In order to give companies incentives to invest in this, it is important that countries commit themselves in advance to buying these vaccines and that they diversify by buying several vaccines at the same time. "