Robert B. Wilson

Robert B. Wilsonis an American economist who, with Paul Milgrom, was awarded the 2020 Nobel Prize for Economics (the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) for his contributions to the theory of auctions and for his invention of new auction formats, or rules of operation, for goods and services that could not be efficiently sold in more traditional types of auction. Since the 1990s, Wilson and Milgrom’s theoretical and practical work has profited both auction buyers and sellers and enabled governments to allocate increasingly numerous and complex public assets—including radio and broadband frequencies, electricity, airport landing slots, and natural resources—to ensure their efficient use and to maximize their benefits to society.

Wilson studied at Harvard University, where he earned an A.B. (bachelor’s) degree in 1959, an M.B.A. in 1961, and a D.B.A. (doctor of business administration) in 1963. In 1964 he joined the faculty of the Graduate School of Business at Stanford University, where he was appointed Atholl McBean Professor of Economics in 1976 and Adams Distinguished Professor of Management in 2000. He also served as director of the Stanford Institute for Theoretical Economics from 1993 to 1995. He retired as professor emeritus in 2004.

Wilson’s early theoretical work, in the 1960s and ’70s, focused on analyzing the behaviour of (rational) bidders in the special case of auctions in which the items to be sold have only common values, which are initially uncertain—or uncertain to varying degrees—among bidders but eventually the same for all because they are ultimately determined by market forces. Auctions of items with only common values are contrasted with another special case, that of auctions of items with only private values, which are mutually independent and variable among bidders because they reflect combinations of factors unique to each bidder. In the case of individuals, such factors might include the bidder’s desires, goals, and tastes; in the case of corporations or organizations, they might include a company’s storage capacity, customer base, and available technology.

Wilson found that bidders in entirely common-value auctions will bid lower than their best estimate of the item’s value for fear of falling victim to the “winner’s curse”—the situation in which the bidder unwittingly pays more for an item than what its common value turns out to be. Thus, the final price of the item will be lower than it would be if bidders had more information relevant to determining the item’s common value. In cases in which some bidders have more information than others, those who have less (and are aware that they have less) will bid even lower or choose not to participate.

Most real-world auctions are neither entirely common-value nor entirely private-value but a mixture of the two. That is, the auctioned item may have both a common-value component about which bidders have more or less information and a private-value component that varies among bidders. In papers published in about 1980, Wilson’s Nobel corecipient (and former student) Paul Milgrom analyzed such mixed-value auctions and found, among other things, that some auction formats are more likely to result in a winner’s curse than others and that, other things being equal, formats in which bidders have more information about the common-value component of the auctioned item generate more revenue for the seller than formats in which bidders have less information.

Wilson and Milgrom together applied their theoretical insights to the development of new auction formats that could be used to sell multiple interrelated items simultaneously. One of their best-known innovations, called the Simultaneous Multiple Round Auction (SMRA), was developed in the 1990s after the U.S. government had tried unsuccessfully to allocate radio frequency bands tied to specific geographic areas. In 1994, in its first use of the SMRA format, the Federal Communications Commission (FCC) auctioned off single radio frequencies across multiple regions, raising more than $600 million in the process. The SMRA format was soon adopted in other countries, resulting in more than $200 billion in spectrum sales by 2014.