Nobel Prize 2020 (Economics) -Auction System Improvisation (Current International Economics)

 ■ Nobel Prize - Economics (2020)

Nobel prize in Economics was provided to two professors from the U.S.A, Mr. Wilson and Mr. Milgrom for the detalied analysis and an outlook on the Auction System.

■ Overview of Auction System

Auction System generally (we've seen in many movies as well) is basically the situation where there are many persons for a partucular asset/services 

 raise their voice on the prices of the specific products and the highest one gets the property/services.

□ The Open Auction

The Open Auction is what I explained above.

□ The Sealed Auction

The sealed auction is when the bidders put their prices on a sealed envelope and the other bidders cannot view the bidding pruce of others.

Generally, in this kind of bidding the problem occurs. The bidding done for the

: Minings

: Oil Extraction (Unexploited earlier)

: Telecom system, etc.

are the ones where the bidders bid in an envelope form and here the actual price od the bidding is calculated by the average od the all the bidders prices.

Say, there are 4 bidders for auction for Mining Extraction in Nepal and the actual price of Auction is not known and bidders bid into their intuition.

P1 = Price of 1st bidder (Nepal)

P2 = Price of 2nd bidder (India)

P3 = Price of 3rd bidder (Bangaladesh)

P4 = Price of 4th bidder (China)

Now, the avg price of this bidding is:

P bid = [P1 + P2 + P3 + P4] ÷ 4

Now, Say again if the P1 > P bid, then Nepal overbidded, that is, Nepal fell down into the Winner's Curse.

■ Winner's Curse

As explained and illustrated earlier, Winner's curse is that price which we bidded more of the average bidded price for a certain auction. So, since we (Nepal) set the higer price, we fall into this curse.

Now, my point is, Milgrom and Wilson caught this perspective and studied in detail to find an analytical foundation for the reduction or removal of the Winner's curse.

They stated that the prices that are to be auctioned should be analytically and logically and mathematically calculated and more.

For, this they laid a proper framework (will be discussed in upcoming blogs) and thus they are lauded with the Nobel Prize.

Thank You

Aditya Pokhrel

MBA, MA Economics, MPA