2020 Nobel Prize in Economics Announces Auction Theory Wins Again
University Questions and Little Doorways of Auction
◎Wu Bingcong
Early in the morning on October 12th, California local time, before dawn, Professor Wilson and his wife of the Department of Economics of Stanford University hurried out and rang the doorbell at Milgrom’s house a few hundred meters away, trying to wake this one up. Old neighbor, tell him the good news of winning the Nobel Prize.
Interestingly, Wilson and Milgrom, both professors at Stanford, won the award together. They were also a pair of mentors and apprentices, and both have brilliant records in the field of auction research: the 83-year-old teacher Wilson is known as the "Nobel Prize" "Dynasty Dean", trained three students who won the Nobel Prize.
Student Milgrom has made outstanding contributions to auction practice. He took the lead in designing the auction mechanism to raise an additional US$120 billion for taxpayers.
The two are dedicated to the exploration of auction theory and practice, unveiling classic theories such as "the winner's curse".
The practice of auctions has lasted for thousands of years, and it has appeared in ancient Rome. In ancient times, there were jokes about auctioning the throne.
In modern times, auctions have developed a relatively complete set of logic, but Wilson and Milgrom do not want to stop after winning the award. They hope to give full play to the value of auction market design in the allocation of scarce medical resources for the new crown epidemic and the 5G field Continue to cultivate deeply.
The scholar who won the Nobel Prize is also the old naughty grandpa who unplugged the phone line
Notifying the award is considered a harassing call from a scammer
"Maybe save the bonus for your wife and children."
The last time I participated in the auction was to buy snow boots on eBay
"Hey, Paul, this is Wilson, and you won the Nobel Prize."
"Wow, yeah, good."
Since Paul Milgrom has not been contacted, the Nobel Prize Committee can only ask Robert Wilson, who is also a laureate and both teaches in the Department of Economics at Stanford University, to help convey it.
This somewhat plain conversation was recorded by the monitor in front of Milgrom's house, and was issued by a reporter from the Stanford University News Center in cooperation with the press release.
The one who knocked on the door with Wilson that day, and his wife Mary.
Because before that, when he heard that he had won the Nobel Prize, Wilson was so surprised that he thought it was a harassing call from a liar. He even unplugged the phone line at home as a coping strategy.
In the end, the Nobel Prize Committee successfully communicated the winning message by contacting his wife.
This year the two winners will split the 10 million Swedish Krona prize (approximately 7.62 million RMB). Wilson said that because the new crown pneumonia epidemic is still ongoing, he does not know what to do with the prize for the time being. “Maybe you can save it to your wife. Use with children."
For the two winners, the Nobel Prize Committee believes that their research "benefits buyers, sellers and taxpayers around the world", and the auction model they created has also been widely used.
Even so, the two big coffees are not unsmiling academics in life. In various media reports, their images are more like two kind and kind old naughty grandpas.
After being knocked on the door to learn that the story of his winning was reported, the 72-year-old Milgrom also talked about the situation when interviewed at home.
"The way I learned about the award was very strange. It was Wilson who came knocking on the door of my house, and his house lived across from my house." But because he turned his mobile phone to mute, he didn't miss the organizing committee's call directly. Missed information.
Milgrom also revealed that students, friends and colleagues said a long time ago that he and Wilson might win the Nobel Prize together.
When this day does come, "this moment is extremely happy."
Wilson, who was interviewed by telephone, mentioned that he had been interested in auction theory since the 1950s and thought that the time to win the prize had passed.
The 83-year-old man also admitted that he has very little experience in participating in auctions in real life. "My wife reminded me that the last time I participated in an auction was to buy snow boots on the auction site eBay."
Master and apprentice work together in the field of auction theory and practice
The telecom spectrum auction known as the "Century Auction" raises 120 billion US dollars for taxpayers
Wireless spectrum, electricity, and online advertising can all be auctioned
Wilson is simply the "patriarch" of the Nobel Prize Dynasty
Once the award statement of the Royal Swedish Academy of Sciences was issued, Wilson and Milgrom became famous in the world, but in fact, the two had already been well-known in economic circles before.
Milgrom is a good at auction. His most praised achievement is to let the heavyweight customer, the Federal Communications Commission (FCC) use the "synchronized price-increasing auction" mechanism he designed to perform wireless spectrum bidding, thereby paying taxes. People raised an additional $120 billion.
Auctionomics, a bidding consulting company established by Milgrom, is responsible for designing auction mechanisms for customers. In the past, the FCC allocated spectrum through hearings or drawing lots, but this method made the industry feel unfair and actively lobbyed.
In this regard, Auctionomics proposed that the simultaneous auction of a large number of spectrum licenses and multiple rounds of bidding will not only encourage the industry to bid more actively, but also allow the industry enough time to consider other people's bid information and make accurate estimates accordingly.
Bloomberg pointed out that from 1994 to 2014, the FCC used this mechanism to sell radio spectrum and successfully raised more than $120 billion for taxpayers.
At present, the sale of scarce public resources such as electricity, oil and natural gas leases also uses this auction method.
In addition, the online advertising business of Internet giant Google also uses the auction mechanism they designed for trading.
Financial reporter David Walsh pointed out: "Google can quickly and perfectly adopt this method, completely relying on the research and development of Milgrom and his students." It can be seen that the auction mechanism designed by Milgrom not only applies Extensive, and fully play a role in the market.
On the other hand, his teacher Wilson can be called academic master, including Milgrom, Wilson has trained 3 Nobel Prize winners.
Alvin Rose, a professor of economics at Stanford University, was taught by Wilson. With his contributions to stable allocation theory and market design practice, he won the Nobel Prize in Economics ahead of his teacher in 2012.
Ross once said with a smile that Wilson is the patriarch of the Nobel Prize dynasty. When you think about the possible influence of Wilson's students and my students, this dynasty does not end.
In addition, another student of Wilson, Bent Holmstrom, also won the 2016 Nobel Prize for his expertise in contract theory and the application of incentive systems in modern corporate governance.
It is worth mentioning that Wilson and Milgrom have a deep relationship. Their initial cooperation began in the late 1970s, when Milgrom was a graduate student under Wilson's guidance, and Wilson eventually served as Milgrom's doctoral thesis. The advisory professor.
After that, the two masters and apprentices have been deeply involved in the field of auctions and have cooperated a lot. Their inventions have been widely used in the sale of radio frequency spectrum, electricity and other fields. The airport's scheduled departure and arrival time allocated to aircraft on a specific date also refer to their design model. .
Historic auction events date back to 2500 years
The Babylonian "Bridal Auction" is the first recorded auction of mankind
The Roman emperor who relies on auctions has only been in power for 66 days
London auction industry was once hot
The study of auction theory from the perspective of economics is a recent trend, but auction activities that have a history of history have existed in ancient times.
Around 500 BC, the Kingdom of Babylon, one of the four ancient civilizations, gave birth to the first recorded auction of mankind—the bridal auction.
The historian Herodotus recorded that women of marriageable age were divided according to their beauty and health, and appeared in sequence. The highest bidder even won the bid and could become the groom.
This text that records the history of human auctions is more than 2500 years old.
It is true that the objectification of women and the exchange of money are undoubtedly backward behaviors in the slave society, but the mode of transaction already belongs to the category of auctions.
Since then, there have been auctions in ancient Greece and ancient Egypt: in the 5th century BC (500 BC-401 BC), there were auctions of slaves, mining farms and confiscated property in ancient Greece; Egyptian trusts The Miller dynasty (305 BC-30 years ago) also auctioned state-owned threshing equipment, royal land and public works.
Although the auction activities in ancient times had the basic conditions for auction, they were still quite different from today.
At that time, limited by the social system and the level of productivity, auction objects were scarce, and the auction items were often human-oriented, taking into account other goods. The slave owners' buying and selling of slaves and bidding marriages also reflected the backwardness of the society at that time.
However, although the early auctions have a long time span, because there is no professional auction institution, the auction has not formed a scale and is still a money game among the nobles.
In the history of kingship change, there is also a legend related to auctions.
In March 193 AD, the Roman Empire, which was once prosperous, was in an era of great turmoil. 300 Janitors staged a coup and killed the Emperor Bertinax. The throne was suspended for a while.
However, the murdered emperor has a good reputation among the people, and he is praised for his honesty and integrity.
The members of the Senate were dissatisfied with the brutal behavior of the Imperial Guard and refused to help establish a new emperor.
The Guards lacked organization and leadership, but wanted to benefit from it. In desperation, they began to publicly auction the throne.
According to legend, a loudly voiced soldier climbed up the city wall and shouted as he ran: "Auction the Roman throne! Auction the Roman throne!"
Looking back at this piece of history today, it is not difficult to understand such a ridiculous scene: more than 1800 years ago, the Roman Empire had a chaotic situation of five emperors a year, and the emperors were assassinated and mutiny quite frequently.
In this bid for the throne, 56-year-old Julianus came to the castle of the barracks and started a bid with the late emperor’s father-in-law Tirpistianus, who offered to give each soldier five thousand dinars. But Julianus, who was eager to get the throne, immediately bid six thousand two hundred, and finally won the throne with this price.
However, the additional condition is that he cannot hurt his opponent to show the fairness of the auction.
The first auction of the throne in history was not considered a success. This move caused dissatisfaction across the Roman Empire, and the army rebelled.
The army commanded by Severus advances into Italy in the name of helping the slain emperor Bertinax revenge.
In the beginning, the Janissary Guards, which organized the auction, immediately turned against the powerful legion and real interests, announcing Julianus’ abdication, and even beheaded him in June 193. The emperor who was in power by the auction was only in power. 66 days.
These ancient auctions were short-lived, irregular and not formed in scale. It was in the 17th century that human auction activities began to enter a new historical stage.
After the rise of the Industrial Revolution, British capitalism flourished, commerce and trade were flourishing, and used ships, paintings and manuscripts and even real estate gradually flowed into the auction market.
In the 18th century, the auction industry began to operate transnationally in Europe. The two largest auction houses in the world today, Sotheby's and Christie's, were established in London in 1741 and 1766 respectively.
At that time, there were more than 60 auction houses of various sizes in London alone, showing the popularity of this industry.
How to avoid entering the pit "victor's curse"?
Analyze whether the lot has a common value and bid carefully
Fully understand the opponent and quote the appropriate price
If there is no satisfaction and joy, consider closing
When it comes to auctions, it is not difficult for us to think of the scenes in the movie. The bidders shouted out the numbers and the prices of the lots kept rising.
At this time, bidders are attracted by the lot and, driven by their eagerness, are likely to call out numbers much higher than the market price of the lot.
In the end, even if he won the auction, he began to wonder: Did I bid too high?
At this point he actually lost the auction.
"Winner's curse" (winner's curse) is just one of the auction theories studied by the Nobel Prize winner Wilson.
In response to this, the Business Negotiations section of the Harvard Law School website specifically issued an article introducing what is the "victor's curse", how it was formed, and telling everyone how to avoid it.
A vivid story is: In class, the teacher brought a jar of coins and asked everyone to write down their quotations. The highest bidder could get it.
Afterwards, each student made a speech and announced the price he had offered. Bob obtained the ownership of the jar with the highest class price of 45 dollars.
When the teacher asked him how he felt right now, he didn't even know the total value of the coins in the jar.
What this classic case wants to show is that the lack of in-depth knowledge and careful investigation of things has caused many bidders to pay more than the actual value of the goods when they are uncertain about the value of the goods.
The article pointed out that from large-scale M&A transactions to eBay purchases in life, auction activities are all over the world.
If you want to avoid becoming the next victim of "victor's curse", you need to follow three principles.
First, analyze whether the lots have common value elements.
Just like a can of coins in the story, it is an ordinary value asset, which has the same value for all bidders. For such a lot, it is necessary to consider the market situation and bid carefully.
In addition, you must evaluate your own capabilities, fully understand your opponents, and compare the purchasing power of other bidders in order to quote an appropriate price and win the lot.
Finally, before each bid, you might as well stop and think about how you feel if you win the auction at this time?
If you don't feel happy and worthwhile, it means it's time to end.
The classmate Bob in the story is indeed a victim of the "victor's curse". After he got the coin jar at a bid price of 45 dollars, he found that there was only 20 dollars in it. This bad situation made him feel very annoyed.
The "victor's curse" theory tells us that winning the bid is not necessarily the best solution or the most valuable option on the negotiating table.
Auction research should also combine social hot spots to solve problems
British auctions are the opposite of Dutch auctions
How to use auction design to distribute scarce medical supplies under the new crown epidemic
5G wireless network deployment is expected to be solved by auction
Although auction can be broadly summarized as a form of transaction, there are many doorways in it, which can be understood from multiple angles such as auction form, buying and selling prices, and auction results.
The outstanding contribution of Wilson and Milgrom lies in their clarification of how the auction works.
Milgrom's book "Auction Theory and Practice" makes a systematic discussion on this.
Starting an auction has diversity in the choice of auction format.
At present, the most mainstream in the world is the British auction and the Dutch auction. The British auction offers are made public throughout the whole process. The bidders bid from low to high, and the higher bidder wins.
On the contrary, in Dutch auctions, lots are bid from high to low until a bidder accepts the offer, which means that the transaction is completed.
In addition, there are also a variety of auction formats used in different occasions.
For example, a first-order sealed price auction allows everyone to write their own quotes in the envelope, and the higher price wins.
The second-order sealed price auction also does not disclose the price, and allows the auctioneer to write his own price in the envelope, and finally the second highest bidder obtains the lot.
This auction mechanism was proposed by economist Vickery in 1961, and Vickery won the Nobel Prize in Economics in 1996 for this reason.
These very different auction formats affect the attitudes of different bidders and ultimately determine the direction of auction results.
In addition, the items being auctioned may also affect the auction results.
The same lot often has different meanings to different bidders, and therefore will be given different values by people.
Just like the opening scene of "La Traviata", the relics of the La Traviata Margaret were auctioned. The lot "Manon Lesco" is a hot-stamped hardcover book. It was sold at a high price of 100 francs, which is the price of the new book. 10 times, bidders scrambled to raise the price precisely because the inscription on the title page made people yearn for.
The uncertainty of the scene may also affect the auction results. At this time, the competition is the homework that each bidder has done in advance and the level of understanding of the opponent.
The auction has developed to this day and has formed a relatively complete system, which is widely used in academic research and social practice.
However, with the changes and development of the new era, auction research also needs to keep pace with the times.
Wilson and Milgrom do not intend to stop after winning the Nobel Prize. Although they have been deeply involved in the auction field for decades, these two professors, who are more than ancient, still intend to make great achievements. They hope to focus on their work. Think of the most passionate and energetic work.
The two described their current research to reporters at the Stanford News Center: how to use auction design to deal with some of the challenges posed by the COVID-19 pandemic, especially the distribution of scarce medical supplies, such as personal protective equipment and breathing. Device.
Milgrom recalled: "All of us remember that in the early days of the new crown pandemic, we encountered a terrible mess in the distribution of ventilators. These ventilators were competing with each other among the states and were only raising prices. Then he added: “In times of crisis, market rules are really important.” He hopes that through auction market design work, competition and distribution of public resources can be realized, complex problems can be effectively solved, and the system we have can better Complete the task of resource allocation.
On the other hand, with the development of the network today, the two award-winning professors have also begun to ponder to contribute to the construction of the Internet: their recent concern is how to accelerate the deployment of 5G wireless networks.
How to redistribute the limited radio wave spectrum has always been a major obstacle to the promotion of high-speed wireless networks.
Faced with this problem, Wilson hopes that through auctions, bidders' quotations can be kept reasonable, so as to help the 5G network deployment plan to transition faster and be effectively executed.