I'll post market design related news and items about repugnant markets. See also my Stanford profile. I have a general-interest book on market design: Who Gets What--and Why The subtitle is "The new economics of matchmaking and market design."
These three have a broad scope of work together. One aspect that fits well with this year's prizes in Physics and Chemistry is a connection to artificial intelligence, particularly in the book Power and Progress by Acemoglu and Johnson:
Here's the blurb by Abhijit Banerjee and Esther Duflo
"One powerful thread runs through this breathtaking tour of the history and future of technology, from the Neolithic agricultural revolution to the ascent of artificial intelligence: Technology is not destiny, nothing is pre-ordained. Humans, despite their imperfect institutions and often-contradictory impulses, remain in the driver’s seat. It is still our job to determine whether the vehicles we build are heading toward justice or down the cliff. In this age of relentless automation and seemingly unstoppable consolidation of power and wealth, Power and Progress is an essential reminder that we can, and must, take back control."
WORKING PAPER 31762, DOI 10.3386/w31762, October 2023
Abstract: How, when, and why did women in the US obtain legal rights equal to men’s regarding the workplace, marriage, family, Social Security, criminal justice, credit markets, and other parts of the economy and society, decades after they gained the right to vote? The story begins with the civil rights movement and the somewhat fortuitous nature of the early and key women’s rights legislation. The women’s movement formed and pressed for further rights. Of the 155 critical moments in women’s rights history I’ve compiled from 1905 to 2023, 45% occurred between 1963 and 1973. The greatly increased employment of women, the formation of women’s rights associations, the belief that women’s votes mattered, and the unstinting efforts of various members of Congress were behind the advances. But women soon became splintered by marital status, employment, region, and religion far more than men. A substantial group of women emerged in the 1970s to oppose various rights for women, just as they did during the suffrage movement. They remain a potent force today.
Here's the concluding paragraph:
"Women won some of their most important workplace rights in the 1960s because of a set of fortuitous events. They continued to win in the early 1970s because of a movement that gave them influence. They won yet more because groups that were supportive of their cause—college graduates, single women, Black women—expanded relative to others. They won when they had the political clout to get men, especially those in Congress and the White House, to see that women’s rights were as valid as civil rights. Yet, women’s rights had setbacks when, in light of many gains, women abandoned the movement. Women’s rights has had a truly “strange career.”
Lloyd's niece, Deborah Shapley, is a Washington DC based science writer and activist. She is developing a website of material about her grandfather (Lloyd's father) Harlow Shapley.
In connection with that, she's published a website about Lloyd, that talks about his life and his work:
"Lloyd Shapley received the Nobel prize from King Carl XVI Gustaf of Sweden at the annual grand ceremony in December 2012. Among the Nobelists my uncle Lloyd was the tallest. At age 89, he was the oldest. Though wobbly he was dignified and humorous. He also differed from the others by his convention-defying hair - which resembled the mathematical algorithm for which he won science’s highest honor.
"At the time I posted about our family’s glorious days in Stockholm. Now that my writing focuses on high achievement in science, including that of the Shapleys, I dug a bit into the story of my talkative, funny, floppy-haired uncle."
G translate: Paul Milgrom and Robert Wilson. From theory to practice in auctions
Here's one snippet:
"R. Wilson ([1967], [1969] and [1977]) provided the first analysis of Bayesian equilibrium strategies in the case of a common and uncertain value. This work was extended by P. Milgrom [1981a] and by many other authors subsequently. [6] Introducing the hypothesis of conditional independence according to which the signals received are positively correlated, Wilson [1969] thus showed that, in this context, the winner was the one who overestimated the true value of the object the most. He also highlighted how agents should determine their offers by incorporating into their strategies that the winner is the one with the highest signal."
"In 1991 Alvin Roth, who in 2012 would share the Nobel prize for economics, was asked how the discipline might change over the century to come. “In the long term”, he wrote, “the real test of our success will be not merely how well we understand the general principles which govern economic interactions, but how well we can bring this knowledge to bear on practical questions of microeconomic engineering.” Sweden’s Royal Academy of Science seems to agree. On October 12th it gave this year’s Nobel prize to Paul Milgrom and Robert Wilson, both of Stanford University, for their work on auction theory and design. Their work epitomises economics as engineering.
...
"The pursuit of economics as a form of engineering means that Messrs Milgrom and Wilson are more enmeshed in the real world than the typical academic. Both have consulted for regulators and firms. Mr Milgrom advised Time Warner and Comcast on their participation in radio-spectrum auctions in 2006; his efforts helped save his clients more than $1bn. In 2009 he co-founded a firm, Auctionomics, that provides consulting services to those looking to operate and to bid in auctions (many of the sort designed by the prizewinners).
"It is a different sort of work from that which many aspiring scholars imagine themselves to be pursuing. But the rewards the laureates have reaped in academia and beyond certainly advertise the power wielded by economic engineers."
Congratulations to David Card, Josh Angrist, and Guido Imbens. Natural experiments and their statistical analysis join laboratory experiments and randomized control trials in the pantheon of modern empirical tools in economics celebrated in Stockholm:
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 was divided, one half awarded to David Card "for his empirical contributions to labour economics", the other half jointly to Joshua D. Angrist and Guido W. Imbens "for their methodological contributions to the analysis of causal relationships."
"After rocky early years, I had a happy youth in a small town, and then stumbled through eight years at Harvard, emerging with little sense of what to do next, until I moved to Stanford where my research thrived. A minor project on adverse selection in auctions led me to join in the nascent reconstruction of economic theory using game-theoretic models, and then later, foundational topics in game theory, all focused on the role of agents’ information and their effect on incentives. I’ve enjoyed working with PhD students and been fortunate to have superb co-authors with better skills."
American Economic Review 2021, 111(5): 1383–1405 https://doi.org/10.1257/aer.111.5.1383
Here are a few of the introductory paragraphs:
"Game-theoretic modeling of auctions began in the 1960s with a pair of seminal papers by William Vickrey (1961, 1962) and the brilliant but unpublished doctoral dissertation of Armando Ortega-Reichert (1968). Robert Wilson (1977, 1979) became the next important contributor to auction theory research and, as Wilson’s student, I was inspired to make auctions and bidding the subject of my doctoral dissertation.
...
"Most of my work published in academic journals is theoretical, proving theorems about the properties of abstract models, but developing and participating in real-world mechanisms requires more than that. Two important lessons that I learned from working on high-stakes auctions are that they operate in an almost infinite variety of contexts, and that this variety is the reason for the paradoxical importance of including unrealistic assumptions in models built to understand and illuminate reality. No single set of assumptions is adequate to describe all the various settings in which auctions are used, and too much specificity in models can blind the analyst to important general insights.
...
"Why do economists rely on such unrealistic assumptions? It is because a well-chosen simplification can remove the dust and smoke that obscures our view of the workings of economic forces. Although we celebrate the resulting theorems for the insights they deliver, we can apply them successfully only by being vigilant, working hard to understand not just the insights that simplified analyses provide but also how the designs and rule choices they inspire must be adapted to withstand the dust and smoke and also the much larger disturbances of the particular worlds in which the mechanisms will operate."
And here are the concluding paragraphs:
"Auction theory has changed substantially since I made my first studies in what were still its early days. Although the “unrealistic” models of those times have proved their worth in guiding practical auction designs, some of that guidance was off point. In my own work, this showed up in the traditional analysis of the exposure problem. Despite the theoretical worst-case conclusion that exposure problems are intractable, we found that they could sometimes be quite manageable in practice.
"For the future, simulations and computational methods are likely to be increasingly important. Yet, it still takes theory to understand problems and the scope of proposed solutions. The time has come for old methods and new to work hand in hand."
Here's a celebratory account of the Nobel winning work of Milgrom and Wilson. The authors have used the new AEA symbol for random ordering of authors, which I can't reproduce here (it's an r in a circle..)
by (in random order) Alexander Teytelboym Shengwu Li Scott Duke Kominers Mohammad Akbarpour Piotr Dworczak, March 13, 2021
Abstract: The 2020 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Paul R. Milgrom and Robert B. Wilson for “improvements to auction theory and inventions of new auction formats.” In this survey article, we review the contributions of the laureates, emphasizing the subtle interplay between deep theoretical questions and practical design challenges that resulted in one of the most successful fields of economics.
Here is Bob Wilson, in a very low key account of (what I would have described as) how he saw the future, changed economics, mobilized a generation of scholars, and won the Nobel.
Abstract: The diploma for the Sveriges Riksbank Prize in Economics Sciences in Memory of Alfred Nobel that I shared in 2020 with Paul Milgrom cites “improvements in auction theory and inventions of new auction formats”.1 As requested by the Royal Swedish Academy of Sciences, this lecture describes the origin of my work on auctions. It complements the Nobel Lecture by Paul Milgrom (2021) that describes later developments in theory and practice.
Here's footnote 4:
"As an MBA student in 1959 I received a failing grade on a written analysis of a case involving competitive bidding because I invoked a mathematical analysis rather than the mandatory ‘administrative point of view’ "
This was a Nobel year unlike any in recent memory, since the Covid pandemic prevented the festivities from being held in Stockholm as they usually are. The Nobel lectures by Milgrom and Wilson were recorded at Stanford, and they received their medals from the Swedish consul in a private ceremony.
"It was the first to be awarded outdoors and the first outside of Stockholm.
It was the first economics prize awarded to a student (Paul) with his disseration adviser (Bob).
It was the first awarded jointly to two people living across the street from one another.
Paul became the first to give TWO Nobel prize lectures, having already lectured on behalf of Vickrey in 1996.
The backyard ceremony was held behind a residence that had housed two economics laureates (Paul Milgrom & Joe Stiglitz), plus 3-time SuperBowl winning coach Bill Walsh!
"Also unusual is that, by focusing on Paul's auction contributions, the Nobel Committee had left unmentioned ten of Paul's twelve most highly cited publications."
"there are many cases where the “invisible hand” does not work. Prof. Wilson’s analysis of the winner’s curse in common-value auctions is a prominent example. “Sometimes the invisible hand needs a bit of help, and that’s where market design comes in – for instance, making sure bidders can update their value estimates during the bidding process itself”
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Here (live streamed today on Dec. 16) is an event originating in Vienna, including a video interview in which I talk to Ben Greiner. (It starts at 6pm CET, i.e. 9am PST):
"This event is being organized by the WU Department of Economics
"Nobel Prizes are awarded every year in December, on the anniversary of Alfred Nobel’s death. Nobel laureates are celebrated in the media, but hardly anyone knows anything about the research that goes on behind the scenes. We plan to change that. In cooperation with experts, we will be introducing the work of the winners of this year’s Nobel Prize in Economic Sciences in terms that even laypeople can understand. We will analyze the innovative power of the work and discuss its significance and potential applications in practice.
Welcoming words: Tatjana Oppitz, Vice-Rector for Infrastructure and Digitalization
Discussion: Maarten Janssen, Professor of Economics, University of Vienna
Maarten Janssen is Professor of Microeconomics at the University of Vienna. Among many others, his research interests are in the fields of game theory, industrial organization and competition policy, and in particular auctions. He is particularly interested in the implications of information asymmetries in markets and market design.
Stefan Felder, Rundfunk und Telekom Regulierungs-GmbH: RTR
Stefan Felder studied at Technical University and University of Economics and Business in Vienna. He worked in the telecommunications industry and at the University of Vienna. As of 1998, he has been a member of the Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR). He is an expert on spectrum auctions, competition analysis, and mobile communications. He is Head of Spectrum and Mobile Market at RTR.
Moderation: Maria Marchenko, WU
Maria Marchenko is an Assistant Professor at the WU Department of Economics. Her research lies in the fields of applied and theoretical econometrics using state-of the art techniques and theoretical concepts with applications to networks and labor market.
Video interview: Alvin E. Roth, Winner of the Nobel Prize 2012; Professor of Economics, Stanford University
Alvin E. Roth is Professor of Economics at Stanford University. In 2012, he won the Nobel Prize in Economic jointly with Lloyd Shapley “for the theory of stable allocations and the practice of market design.’’
"If designed correctly, auctions can distribute resources fairly, according to Stanford economists Robert Wilson and Paul Milgrom. The pair were awarded the 2020 Nobel Memorial Prize in Economic Sciences for their improvements to auction theory and inventions of new auction formats."
In my limited experience (but not just limited to my own experience) Nobel prizewinners are often asked about how they were notified of the fact that they won the prize, and by whom. Paul Milgrom and Bob Wilson certainly have one of the best stories to answer that question, and millions of people have already viewed the video from the Milgroms' Nest doorbell camera, as Bob tried to arouse Paul and give him the news.
The Nest doorbell broadcast also to Paul's wife Eva, who was visiting family in Stockholm, and who was alerted at the same time he was. Here's the view from the Swedish press (including a video of the video playing on her laptop...):
"AS: We just spoke with Paul Milgrom and he said that he heard the news by you walking across the street and ringing his doorbell.
RW: Well that’s right because he had turned his phone off for the … to get a good night’s sleep, and so somebody had to wake him, and he lives across the street so I just walked over and knocked on the door. I roused him.
AS: I think … I think this must be a first in the history of the Nobel Prize.
RW: Yes, how many times does … first to have a knock on the door, which sounds like something from the 19th century, and secondly that in fact the two of us live only, what, 40 m apart."
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It turns out that Bob Wilson went to Lincoln High School in Nebraska (and that you can never escape your high school):
"The Lincoln High School wall of distinguished alumni — the one with photos lining the school's main hallway — will need to make room for another photo.
"Robert Wilson, who graduated from Lincoln High in 1955, left for Harvard on a prestigious scholarship and ultimately landed at Stanford, won the Nobel Prize in economics Monday."
The day of the prize, the NY Times story by Jeanna Smialek got this fairly coherent quote from me before dawn:
“They haven’t just profoundly changed the way we understand auctions — they have changed how things are auctioned,” said Alvin E. Roth, a Nobel laureate himself who was one of Mr. Wilson’s doctoral students.
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Joshua Gans, one of Paul's students, republished the remarks he had made on the occasion of Paul's 65th birthday (long ago...)
"There are so many things one could say about Paul but it turned out that I said what I wanted to say back in 2013 at a conference in his honor to celebrate his 65th Birthday."
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Bob's longtime colleague (and my one time housemate when we were grad students) David Kreps has a lovely essay, which includes this quote from Hugo Sonnenschein:
"Great economists write great papers. But the greatest economists are those who found new schools of thought."
"impact on the discipline of economics, in my opinion, puts him in the company of giants such asKen ArrowandPaul Samuelson: Bob is, as much as anyone, the founder of the “School of Economic Theory as Engineering.” Both in his own work, but even more through his influence on his students and colleagues, Bob has brought economic theory to the real world, both as a mechanism for understanding “how things work” and then in the design of better institutions. The Nobel Prize announced today is for his and Paul’s work on the design of complex auctions, such as the spectrum auctions, which is a prime example of economic theory as engineering. But, in addition:
Bob himself has taken the theory of nonlinear pricing to practical applications in electricity markets.
His student, Nobel Laureate Al Roth, brought matching-markets theory to the design of assignment algorithms, assigning MDs to internships, and to kidney exchange “markets.”
His student, Nobel Laureate Bengt Holmstrom, brought incentive theory to practical considerations in the design of pay-for-performance systems (some in collaboration with Milgrom) and, more recently, to issues in financial institutions.
His student and co-Nobel Laureate Paul Milgrom, besides his work on auction design, and in collaboration with our colleague John Roberts, brought economic theory to bear on the design and management of complex organizations (which, for my money, is even more important than his pathbreaking work on auctions; Paul could have been given the Nobel for any of several different topics, and his work on “the modern corporation” happens to be my personal favorite).
And it continues: A third generation — students of Paul, Bengt, and Al, as well as others who have embraced this style of work and so became “adopted” members of Bob’s tribe — are building an intellectual edifice that mixes superb theory with real-world insight and applicability."
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Did you know that Paul has a company? Here's the tribute on the Auctionomics website:
Could this be the best Nobel pairing ever? (It's certainly a great one, and one of the best things to come out of 2020 so far...) Here's the announcement:
"The 2020 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats" https://www.nobelprize.org/
I've known Paul at least since 1978, when he attended a course I taught while on leave at Stanford, on Axiomatic Models of Bargaining. Bob advised both of our dissertations, although not at the same time.
Bob is a legendary advisor of grad students. Paul is now the third of Bob's students to win a Nobel. So Bob is well established as the patriarch of a Nobel dynasty.
Bob Wilson's Nobel dynasty (to date): Wilson (with Milgrom) 2020, and Bob's students Roth (with Shapley) 2012, Holmstrom (with Hart) 2016, and Milgrom (with Wilson) 2020
It looks like we should check back in 2024...
Here's another picture, from another celebration:
Bob Wilson being celebrated for the 2017 CME MSRI prize, by his students Al Roth, Paul Milgrom, and Bengt Holmstrom.
I've often blogged about both Milgrom and Wilson, separately and together.
Here's a paragraph I wrote about Bob's work in our (only) joint paper, in which we interviewed each other:
Alvin E. Roth and Robert B. Wilson Journal of Economic Perspectives—Volume 33, Number 3—Summer 2019—Pages 118–143
"Wilson (1977) introduced the model of common-value auctions (sometimes called the “mineral rights model”). The model and its equilibrium initiated a large body of theoretical, experimental, and applied work. One important insight from this model is that winning an auction contains “bad” news, since it implies in equilibrium that the winner’s estimate is the highest. In equilibrium, rational bidders fully account for this, but the paper raises the empirical question of the extent to which actual bidders are able to fully discount for the fact that, if they win the auction, they likely overestimated the value of winning. Thus, Wilson’s work initiated a new research program on the winner’s curse, involving systematic overbidding compared to equilibrium, sometimes involving losses to the winning bidder. The private-value model of Vickrey (1961) and the common-value model of Wilson (1977) together form the basis of much of modern auction theory and practice, since most auctions
have elements of both private and common value."
Right after that, Bob and I talked about important influences on our work. Bob included this:
"I was deeply affected in the early 1990s by working with Paul Milgrom on design of the FCC spectrum auctions. I marveled at his insights and creativity in constructing rules for a “simultaneous ascending auction” that would have good prospects of yielding an approximately efficient outcome in an environment afflicted with strong complementarities, dispersed private information about market fundamentals, and substantial market power."
To which I replied:
" I was also much influenced by Paul when we developed and co-taught what may have been the first courses in market design, in 2000 and again in 2001 when he was on leave at Harvard and MIT."
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Here's an old snapshot:
Bob Wilson and Paul Milgrom in 2006
There's a rabbinical literature about the relationships between students and teachers. It often comes to mind when I think about how lucky I have been to have the students I've had. But today I'm reminded of my luck in having Bob Wilson as my teacher and friend, and Paul as my friend and colleague.
"Joshua ben Perahiah used to say: provide yourself a teacher and acquire yourself a friend. Judge everyone favorably." (Pirkei Avot, chapt 1 verse 6)
Here's how I recalled Bob as a teacher, in an autobiographical essay of a kind that they will each now be asked to write:
"Bob Wilson agreed to be my advisor and rescued me from having what looked to be a very short academic career after I failed one of my Ph.D. qualifying exams. He was on sabbatical that year, but met with me regularly once a week for an hour. In memory, our meetings followed a kind of script: I would spend a while explaining to him why I hadn’t made progress that week, and then he would spend a while telling me not to be discouraged. Then I would describe some roadblock to further progress, and he would, as we finished our meeting, recommend a paper for me to read. Because his recommendations had always been very much on target, I would go straight from his office to the library and start to read the paper. As I did, I would think, this time Bob made a mistake, this paper has nothing to do with my problem. But then, somewhere in the middle of the paper would be a lemma or remark that helped me get around that roadblock …"
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And here's a final picture from Stockholm in 2012, of me and Emilie and Paul and Eva, with Parag Pathak (one of Bob's academic grandchildren) in the background.
“for improvements to auction theory and inventions of new auction formats”
...
“This year’s Laureates in Economic Sciences started out with fundamental theory and later used their results in practical applications, which have spread globally. Their discoveries are of great benefit to society,” says Peter Fredriksson, chair of the Prize Committee." Learn more in the popular information
"Every day, auctions distribute astronomical values between buyers and sellers. This year’s Laureates, Paul Milgrom and Robert Wilson, have improved auction theory and invented new auction formats, benefitting sellers, buyers and taxpayers around the world." Read the scientific background
Shortly after the Nobel prizes are awarded each year, it becomes the task of the staff of the Nobel Foundation to get the prizewinners to write various things, including an essay of intellectual autobiography. Mine was completed fairly promptly, and may have been available for some time now, but I just noticed that it is here (with some pictures:).
While preparing for a talk I gave in England, I recently reread my 1990 paper: Roth, A.E., "New Physicians: A Natural Experiment in Market Organization," Science, 250, 1990, 1524-1528. I hadn't recalled it, but this was the last paragraph of that paper: "It is noteworthy that the simple idea of pairwise stability formulated by Gale and Shapley (5) has turned out to have so much empirical power. I think their paper has thus proved to be the kind of theoretical work that merits the highest scientific recognition."
The video is a little less than an hour: and consists of brief introductions by Nordhaus, and talks on market design and its history by Milgrom and Myerson, and a short talk by me with some thoughts on the future of market design as economic engineering and the science that supports it. (spoiler: I think it will be important to study congestion...)
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Eleven 2014 Annual Meeting sessions are
available online. (I enjoyed Claudia Goldin's magisterial address on gender and jobs, which reminded me of the work following up on this and the matching aspects of pursuing both careers and marriages, of our joint student Stephanie Hurder.):
I'll be teaching in California and unable to attend, but if you are near the Museum of Natural History at 5PM tomorrow, Sept 23, you could see what is apparently "the only monument in New York City parks which features the names of living persons" "Every year, the names of the American Nobel Laureates from the previous year are inscribed onto the monument and unveiled at an annual ceremony."
The event will be in Theodore Roosevelt Park, adjacent to the American Museum of Natural History. The invitation letter says "This is the location of the Nobel Monument, raised in 2003 to honor Alfred Nobel and all American recipients of the Nobel Prize, who along with you now number 332."
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I was in NYC on 5/17/2014 and took a walk with Itai Ashlagi and Jacob Leshno to see the monument.
(There aren't so many opportunities to see your name in stone:)
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