SAN FRANCISCO (CBS SF/AP) — There has always been a San Francisco Bay Area rivalry between Cal and Stanford, but this year it has taken a unique twist.
Both schools now have a pair of Nobel Prize winners this week after Stanford’s Paul R. Milgrom and Robert B. Wilson were awarded the prestigious honor for economics Monday for their work improving the theory of how auctions work and inventing new and better auction formats that are now woven into many parts of the economy.
Last week, UC Berkeley biochemist Jennifer Doudna was awarded a share of the 2020 Nobel Prize in Chemistry for the co-development of CRISPR-Cas9, a genome editing technology.
While UC Berkeley Professor Emeritus Reinhard Genzel shared the Nobel Prize in physics with two others for advancing our understanding of black holes, the all-consuming monsters that lurk in the darkest parts of the universe.
On Monday, the selection panel said Milgrom and Wilson’s who has “benefitted sellers, buyers and taxpayers around the world,” noting that the auction formats developed by the winners have been used to sell radio frequencies, electricity, fishing quotas and airport landing slots.
Both economists are based at Stanford University, which said their work is credited with shaping the entire modern telecommunications industry after they developed a new format for the U.S. Federal Communications Commission’s radio spectrum auctions in 1994. That format has since been copied and adapted for dozens of auctions involving hundreds of billion dollars worldwide.
Reached by phone at his home by the Associated Press, Milgrom said he received news of their win “in a strange way.”
“I got a knock at my door from Bob Wilson,” he said. “He was my Ph.D. advisor, and he lives right across the street from me.”
Video of Wilson telling the news to Milgrom shortly after 2 a.m. was recorded by his security camera.
The #NobelPrize committee couldn't reach Paul Milgrom to share the news that he won, so his fellow winner and neighbor Robert Wilson knocked on his door in the middle of the night. pic.twitter.com/MvhxZcgutZ
— Stanford University (@Stanford) October 12, 2020
After several knocks, Wilson told Milgrom, “You’ve won the Nobel Prize. And so, they’re trying to reach you but they cannot. They don’t seem to have a number for you.”
The university said Milgrom’s wife, who is in Stockholm, received a security camera notification on her phone and was able to watch live as Wilson told her husband about winning the award.
Milgrom said students, friends and colleagues had long suggested he and Wilson might be due for the prize.
“It’s really sweet actually,” he said. “It’s nice to have their respect but their affection as well.”
Technically known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award was established in 1969 and is now widely considered one of the Nobel prizes. The winners were announced in Stockholm by Goran Hansson, secretary-general of the Royal Swedish Academy of Sciences.
The committee said Wilson’s work showed “why rational bidders tend to place bids below their own best estimate of the common value.”
“(Bidders) are worried about the winner’s curse — that is, about paying too much and losing out,” the committee said.
Among the problems that the two tried to tackle was the “snake in the grass strategy,” Wilson said. This involves a company keeping its interest in the item being sold secret for most of the auction and then making the winning bid at the last minute.
“It’s like sniping an eBay auction,” Wilson told the AP. “We had to design rules that at that time sort of restricted that kind of activity.”
This involved forcing bidders to reveal their interest earlier on, he said.
Wilson said his interest in auction theory dated back to the 1950s and that he thought the time for winning a Nobel Prize had already passed.
Speaking to reporters in Stockholm by phone after learning of his win, Wilson struggled to think of a recent auction he himself had participated in. But then added: “My wife points out to me that we bought ski boots on eBay.”
The 83-year-old described his former student as “sort of the genius behind all of this auction work.”
Milgrom, 72, developed a more general theory of auctions that takes into account what is known as the “private value” of what’s being sold that can vary greatly from bidder to bidder.
Americans have figured prominently among this year’s Nobel winners. Leaving aside the peace prize, which went to the U.N.’s World Food Program, seven of the 11 laureates have been Americans.
“After the Second World War there’s been an enormous investment in research and higher education in the United States, and that has paid off in all the sciences,” said Hansson. “And we’ll see how that trend may change in in the future.”
Last year’s award went to two researchers from the Massachusetts Institute of Technology and a third from Harvard University, for their groundbreaking research into efforts to reduce global poverty.
Few economists could have predicted last fall that the globe would come to a virtual standstill within months, as governments closed their borders, imposed lockdowns and ordered other measures to stop the spread of COVID-19, triggering a sharp dip in business activity worldwide.
Wilson said that, given the ongoing pandemic, he had no immediate plans for what to do with his share of the the 10-million krona ($1.1 million) cash prize that comes with the award, along with a gold medal.
“There’s not much I can use it for, in terms, you know, travel or something,” he told reporters on the phone from Stanford. “Probably I’ll just save it for my wife, my children.”