A winning bid: Stanford University professors share Nobel Prize in Economics

Since its creation in 1946, the Office of Naval Research (ONR) has supported the early-career research of more than 60 Nobel laureates.

ONR, which celebrates its 75th anniversary this year, is proud to add two more names to that illustrious list–Dr. Robert Wilson and Dr. Paul Milgrom of Stanford University, who recently won the 2020 Nobel Prize in Economic Sciences.

The professors shared the accolade for their research in Auction Theory, which designs innovative formats for auctioning goods and services that are difficult to sell in traditional ways–including radio frequencies, minerals, energy, electricity rates and cell phone bandwidth.

In addition to helping lay the foundation for the modern telecommunications industry, Wilson’s and Milgrom’s work improved how the U.S. Navy selects bidding contractors to build ships and submarines.

“The Office of Naval Research congratulates Dr. Wilson and Dr. Milgrom in celebrating their outstanding achievement,” said Chief of Naval Research Rear Adm. Lorin C. Selby. “This accomplishment illustrates how ONR basic research sponsorship can drive discoveries and breakthroughs benefiting both the Department of the Navy and the nation.”

“ONR was instrumental in the development of Auction Theory,” said Wilson, who teaches at Stanford’s Graduate School of Business. “Its support was vital at a time when other funding sources were on a shoestring.”

In the 1960s and 1970s, Wilson first formulated Auction Theory with the idea of common value–a value that is uncertain beforehand but ends up being the same for all bidders at an auction. He showed that participants often placed bids below their best estimate of the common value to avoid the “winner’s curse” of paying too much.

In the 1980s and 1990s, Milgrom–who was Wilson’s graduate student in the 1970s–expanded this work to demonstrate that bidders did better when they learned more about each other’s estimated values during the bidding process.

In 1994, the U.S. government used an auction format invented by Wilson and Milgrom to sell radio frequencies to telecommunications operators–a blueprint still used today for cellular networks.

During the 1970s and early 1980s, ONR sponsored Wilson’s research to improve how the Department of the Navy chose contractors to construct naval ships and submarines. As Wilson’s graduate student, Milgrom benefited from this support, which influenced his own future research.

“Back then, the Navy procurement office was interested in using auction procedures for shipyards,” said Wilson. “For example, you had one shipyard that performed well and another that usually ran late and over budget. The Navy wanted an auction design to deal with incentive problems and possible ways of penalizing or remedying these differences in performance.”

Today, Wilson and Milgrom are studying how to apply principles of Auction Theory to challenges posed by the COVID-19 pandemic–specifically, the distribution of scarce medical supplies like respirators and personal protective equipment.

“Auction Theory could potentially improve resource allocation to overcome defects in the current system,” said Milgrom, who teaches at Stanford’s School of Humanities and Science. “We’ve seen states stockpile ventilators for future outbreaks as other states suffer immediate critical shortages–instead of moving ventilators to where they are needed at the moment.

“Ethical priorities must be set on who needs to be served when,” he continued, “and we must find ways to help those with the greatest need to invest in capacity to benefit themselves and others.”

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Learn more about Wilson’s and Milgrom’s win at

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For a list of Nobel laureates supported by ONR, visit

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Nobels

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Warren Duffie Jr. is a contractor for ONR Corporate Strategic Communications.