The blockchain field involves many auction models. A good auction mechanism can make the market transaction mechanism more perfect and reduce the “winner’s curse” and other issues.
Original title: “Public chain project consultant won the Nobel Economic Prize, Milgrom and his auction theory”
Written by: Nancy
The Nobel Prize with a century-old history is one of the biggest events in the global academic community every year. However, this year’s opening method is different. The Nobel Prize award ceremony affected by the epidemic broke the tradition of more than half a century for the first time and was held in a new way of live broadcast, but this did not reduce the public’s attention to it.
As the finale of this year’s Nobel Prize, the Royal Swedish Academy of Sciences announced in Stockholm on October 12 that two American economists Paul R. Milgrom and Robert B. Wilson were awarded The 2020 Nobel Prize in Economics in recognition of their “improvement of auction theory and invention of new forms of auction”, the two will share a bonus of 10 million kronor (about 7.67 million yuan).
Once announced, the two “Stanford mentors and apprentices” immediately gained outside attention. Among them, in addition to deep theoretical research, Milgrom has also made extraordinary achievements in the field of practice. Not long ago, he was also hired as a blockchain project consultant. But many people can’t help but wonder, with so many branches of economics, why the seemingly unfashionable auction theory won? What is the application of the auction mechanism in the blockchain?
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The auction behavior in human history dates back to 700 BC. During the Babylonian period, an auction of women of marriageable age was held every year. At this time, people would auction the marriageable women in the order of beauty, ugliness, and disability, and the man with the highest bid won the bid. The real commercial auctions were initiated in the ancient Roman period. On the basis of the reserved slave auctions, there were institutions specializing in auctions to auction trophies and commodities. The types and methods of auctions were varied, and the groups involved included royals and others. civilian.
Nevertheless, auction theory was not proposed until the 1960s. In 1961, the auction theory pioneered by Canadian economist William Vickrey became the precedent of information economics. In his article “Anti-Speculation, Auction and Competitive Sealed Bidding”, he divided the auction methods into four types: English auction, Dutch auction, first-price auction and second-price auction, and concluded that a The landmark conclusion “Theorem of income equivalence”. For this reason, Vickery also won the Nobel Prize in Economics in 1996, but due to his unforeseen death, Milgrom received the award instead.
Victory’s leapfrog auction theory has brought a large number of economists into the study. Such as the “Common Value Model” proposed by Roger B. Myerson, the Nobel Prize winner in Economics in 2007. Milgrom innovatively expanded and improved the research dimensions of Victory and Myerson. In 1982, he co-authored with Robert Weber (Robert Weber) in “Auction and Competitive Bidding Theory”, which was the first to propose The value-added model with private value information and common value information provides basic conclusions for auction theory.
In 1993, the spectrum auction design that Milgrom participated in was called “the largest auction in history” by the New York Times, which made it famous. At that time, President Clinton, the then President of the United States, signed a decree authorizing the Federal Telecommunications Commission (FCC) to auction spectrum licenses and requiring the first public auction within a year. Due to the inefficiency of traditional auction design, Milgrom and Wilson were called to participate in the main design of the auction mechanism. The auction design of “Relevant Evaluation”, “Relationship Principle”, and “Simultaneous Up-bid Auction” proposed by Milgrom made five spectrum licenses fall into the market at reasonable prices after 47 rounds of auctions for 5 days. The most reasonable use of human hands.
The National Science Foundation of the United States called this event one of the main practical contributions to the study of microeconomic theory in the 20th century. Since then, Milgrom has become an existence that cannot be ignored in the auction field. In the award speech of the “Outstanding Academician Award” awarded by the American Economic Association, he is known as the world’s leading auction designer, and he has provided (and will continue to provide) basic insights into the scope of auction theory and modern microeconomic theory. According to Google Scholar search data, Milgrom’s “Auction and Competitive Bidding Theory” has been cited about 100,000 times.
In the past few years, Milgrom has been speculated to be the winner of the Nobel Economist, but it has been delayed. However, many media reports have stated that there has always been a gossip in the market. Because Milgrom was so attractive, he was dumped by a judge’s girlfriend when receiving the Nobel Prize, which offended the Nobel Prize Jury. , Therefore has been “snow hidden”. Regardless of whether this statement is just a joke, Milgrom finally deserves it.
Wilson’s research on the theory and application of auction mechanism design also has important results. In 1993, Wilson’s book “Non-Linear Pricing” on price mechanism research was published and gained a very good reputation and reputation in the industry. Interestingly, although Wilson’s interest in auction theory can be traced back to the 1950s, when a reporter asked whether Wilson had bought anything at auction, he responded that he had not actually participated in auctions officially. He and his wife have only photographed one ski boot on eBay.
Regarding the awards of Milgrom and Wilson, the Royal Swedish Academy of Sciences commented that the two winners studied the operation of auctions and designed with their deep insights for goods and services that are difficult to sell in traditional ways (such as radio frequency) A new auction format was introduced. Their findings and research results have benefited buyers, sellers and taxpayers all over the world.
“Auction Theory” may become a new perspective of blockchain development
The last time Milgrom walked into the crypto circle, it was in September this year that the public chain project Algorand announced that he was hired as a company consultant.
Projects such as Algorand all use the Dutch auction method. In this way, the bidding price of the auction target decreases from high to low until the first bidder bids (reaches or exceeds the reserve price) when the hammer strikes the transaction. This method makes the auction open and transparent, and solves the problem of difficult pricing. , Including Google when it went public. However, Dutch auctions also have drawbacks, such as high costs. Algorand has canceled the original auction rules because private equity investors continued to hit the market, and the Dutch auctions quickly ran out of losses after paying the orders.
In fact, in public bidding such as Dutch auctions, the bidder’s strategy often depends on how he bids other participants in the auction. At the same time, Milgrom believes that the Dutch style of adopting reduced price auction rules is more likely to lead to a “winner’s curse,” which is a phenomenon that bidders feel worthless after winning the auction. While Vickery’s “Theorem of Equivalence of Income” mentioned earlier, although the value of bidders is completely independent of each other, the strict conditions under which Myerson’s theory is established are difficult to satisfy in reality. The “relevant evaluation” constructed by Milgrom allows any buyer’s quotation to not only show his own information about the item evaluation, but also partially reveal the private information of other buyers. At the same time, after the introduction of “relevant evaluation”, while bidders win the auction, they can also obtain the private information of other bidders, thereby reducing the evaluation of their own bids.
The new auction theory and auction format of Milgrom and Wilson may provide a better solution for token sales or crowdfunding. In the cooperation with Algorand, Milgromye once stated that it hopes to provide help for the wide application of blockchain.
In fact, in the traditional Internet field, Microsoft, Amazon, Taobao, etc. have all introduced inviting economists to design auction rules, so as to effectively determine the order of advertisements for customers and improve operational efficiency and cost. For example, Milgrom has provided advice on Google’s IPO stock plan, and provided consulting services for Microsoft’s search advertising and Yahoo’s sales online advertising auctions. And Susan Athey, the former chief economist of Microsoft, was a student of Milgrom.
Many auction models are also involved in the blockchain field. For example, the art transaction auction market, securities and other fields often have problems such as valuation and transaction difficulties, which to a certain extent restrict the further development of the market. A good auction mechanism can make the market transaction mechanism more perfect, reduce the “winner’s curse” and other issues, and increase the bidder’s expected return.
From this we can see how the auction theory has won the Nobel Prize. Just as Peter Frederickson, chairman of the Nobel Economics Prize Jury, said, this year’s economics prize winners started with basic theories and used their research results in practical applications. These applications have spread all over the world, and their discoveries and research results have brought great benefits to society.
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