Nobel Laureates · Nº 01

Auctions

Two economists who didn't study a market. They built one.
8 cards · The world, by the numbers.
01 / 08
Selling the invisible
Washington, 1993…
In 1993 the American government had to sell something no one could see or touch: radio spectrum. Ordinary auctions failed — bidders colluded, hid what they'd pay, gamed the rules. Nobody knew how to price thin air.
FCC spectrum allocation problem, 1993; Congress authorised competitive bidding.
02 / 08
5 years
an insurance actuary, before any of it…
Paul Milgrom did not look like a future laureate. He spent five years as a qualified insurance actuary, and didn't begin a PhD until he was twenty-seven. The detour taught him precisely how people price risk.
Milgrom: actuary 1970-75, Fellow of the Society of Actuaries 1974; Stanford PhD 1979.
03 / 08
3 students
Robert Wilson supervised them all…
Wilson was Milgrom's doctoral advisor — and not only his. Three of Robert Wilson's students went on to win the Nobel: Milgrom, Alvin Roth, Bengt Holmström. Some people's greatest work is other people.
Wilson advised Milgrom (2020), Alvin Roth (2012), Bengt Holmström (2016).
04 / 08
Make every bid visible
the inversion that broke the deadlock…
Their answer inverted the instinct to hide. Put every frequency block up at once, and show every offer to everyone. Collusion becomes visible. Rivals reveal what they truly value — and telling the truth becomes the winning move.
Simultaneous multiple-round ascending auction (SMRA), Milgrom & Wilson.
05 / 08
$233 billion
raised from selling thin air…
The first auction, in 1994, raised six hundred and seventeen million dollars. Since then the FCC has run more than a hundred of them, raising over two hundred and thirty-three billion — from a resource nobody manufactured.
FCC: first auction 1994 ≈ $617M; 100+ auctions, $233B+ raised for the US Treasury.
06 / 08
2:15 a.m.
the doorbell that would not stop…
The Nobel committee phoned Robert Wilson. He unplugged the line, assuming spam. So at quarter past two in the morning he walked down his own street and rang a neighbour's bell until it woke him. The neighbour was Milgrom.
Oct 2020: Wilson unplugged his phone; doorbell camera recorded him waking Milgrom at 2:15am.
07 / 08
£22.5 billion
when the design worked too well…
Britain used the format in 2000 to sell 3G licences, extracting twenty-two and a half billion pounds. Critics say it bled the industry into the telecom crash. Its designers blame the dot-com bust instead. Even good rules cut deep.
UK 3G auction 2000: £22.5bn. Winner's-curse critique; Klemperer disputes blaming the auction.
08 / 08
Economics as engineering
what the prize really honoured…
That is what the 2020 prize honoured. Not a theory describing markets that already existed — a market built from nothing but game theory. Proof that the right rules can make strangers tell the truth.
2020 Sveriges Riksbank Prize: 'improvements to auction theory and inventions of new auction formats'.

Sources

  1. FCC spectrum allocation problem, 1993; Congress authorised competitive bidding.
  2. Milgrom: actuary 1970-75, Fellow of the Society of Actuaries 1974; Stanford PhD 1979.
  3. Wilson advised Milgrom (2020), Alvin Roth (2012), Bengt Holmström (2016).
  4. Simultaneous multiple-round ascending auction (SMRA), Milgrom & Wilson.
  5. FCC: first auction 1994 ≈ $617M; 100+ auctions, $233B+ raised for the US Treasury.
  6. Oct 2020: Wilson unplugged his phone; doorbell camera recorded him waking Milgrom at 2:15am.
  7. UK 3G auction 2000: £22.5bn. Winner's-curse critique; Klemperer disputes blaming the auction.
  8. 2020 Sveriges Riksbank Prize: 'improvements to auction theory and inventions of new auction formats'.

Image credits

  1. Telecommunications mast at sunset.jpg — W.carter, CC BY-SA 4.0 · Commons
  2. Transmission tower, possibly radio against blue skies in Goa, India.jpg — Fredericknoronha, CC BY-SA 4.0 · Commons
  3. Paul Milgrom Headshot.jpg — Eva Meyersson Milgrom, Public domain · Commons
  4. Stanford University campus in 2016.jpg — Frank Schulenburg, CC BY-SA 4.0 · Commons
  5. NY stock exchange traders floor LC-U9-10548-6.jpg — Thomas J. O'Halloran, Public domain · Commons
  6. Hundred dollar bill 01.jpg — Revisorweb, Public domain · Commons
  7. Cottage lit window at night in Nuthurst, West Sussex England.jpg — Acabashi, CC BY-SA 4.0 · Commons
  8. Mobile phone mast in Upton Magna, Shropshire, England.jpg — Row17, CC BY-SA 2.0 · Commons
  9. Seattle - University Bridge blueprint, 1915 (49781358396).jpg — Seattle Municipal Archives from Seattle, WA, CC BY 2.0 · Commons

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