Paul Milgrom facts for kids

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Quick facts for kids Paul Milgrom
Milgrom in 2013
Born	(1948-04-20) April 20, 1948 (age 77) Detroit, Michigan, U.S.
Spouse(s)	Eva Meyersson

Field	Economics
Doctoral advisor	Robert B. Wilson
Doctoral students	Susan Athey Luís Cabral Joshua Gans Gillian Hadfield Li Shengwu
Awards	Erwin Plein Nemmers Prize in Economics (2008) BBVA Foundation Frontiers of Knowledge Award (2012) Golden Goose Award (2014) Nobel Memorial Prize in Economic Sciences (2020) Technology and Engineering Emmy Awards (2024)
Information at IDEAS / RePEc

Paul Robert Milgrom (born April 20, 1948) is an American economist. He is a professor at Stanford University, where he has taught since 1987. Professor Milgrom is an expert in game theory, especially how auctions work and how things are priced.

He won the 2020 Nobel Memorial Prize in Economic Sciences with Robert B. Wilson. They received the award for making auctions better and inventing new ways to sell things. Milgrom also helped create the no-trade theorem with Nancy Stokey. He has started several companies, including Auctionomics, which helps businesses with auctions.

Milgrom and his teacher, Robert Wilson, designed the auction rules for the FCC. These rules help decide which phone companies get to use certain cellular frequencies. Milgrom also led the team that designed a special auction in 2016-2017. This auction helped move radio frequencies from TV broadcasting to wireless internet use. In 2024, Milgrom's company, Auctionomics, won a technical Emmy Award for their work on auction design.

Early Life and Education

Paul Milgrom was born in Detroit, Michigan, on April 20, 1948. He was the second of four sons. His family later moved to Oak Park, Michigan. Paul showed a strong interest in math from a young age. His teachers encouraged this interest. In 1965, he attended a summer math camp and was the top student.

He graduated from the University of Michigan in 1970 with a degree in mathematics. For several years, he worked as an actuary, which is someone who analyzes financial risks. He became a Fellow of the Society of Actuaries in 1974. In 1975, Milgrom went to Stanford University for graduate studies. He earned a master's degree in statistics in 1978 and a Ph.D. in business in 1979.

Academic Career and Achievements

Milgrom started teaching at Northwestern University in 1979. He was part of a group of professors who used game theory and information economics. They applied these ideas to many economic problems. These included pricing, auctions, and how companies are organized.

One of his colleagues, Robert Weber, shared a story about working with Milgrom. Weber said that Milgrom had a key idea in just a few minutes. This idea became the basis for their first two research papers together.

From 1982 to 1987, Milgrom taught at Yale University. In 1987, he returned to Stanford University as an economics professor. He is still a professor there today.

Milgrom also worked as an editor for important economic journals. He became a Fellow of the Econometric Society in 1984. In 1992, he joined the American Academy of Arts and Sciences. He was elected to the United States National Academy of Sciences in 2006.

Awards and Honors

Milgrom received the Erwin Plein Nemmers Prize in Economics in 2008. This award recognized his work on how information and incentives affect different situations. These situations included auctions and how companies are structured. The award committee said his work helped create new ways to understand economic problems.

He won the 2012 BBVA Foundation Frontiers of Knowledge Award. This award was for his important contributions to many areas of economics. These areas included auctions, market design, and game theory. The jury noted his work on auction theory was especially well-known. They also highlighted his research on how companies behave in competitive markets.

In 2014, he won a Golden Goose Award for his work on auction design. In 2020, he was named a Distinguished Fellow of the American Economic Association.

In October 2020, Milgrom shared the Nobel Memorial Prize in Economic Sciences. The Royal Swedish Academy of Sciences said he and Robert Wilson designed new auction methods. These methods help sell things that are hard to sell in traditional ways, like radio frequencies. Their discoveries have helped sellers, buyers, and taxpayers worldwide.

The Academy explained that Milgrom created a broader theory of auctions. This theory includes situations where bidders have different private values for an item. He showed that sellers can earn more if bidders learn more about each other's estimated values during the auction.

Milgrom and Wilson also invented new ways to auction many related items at once. This was for sellers who wanted to benefit society, not just make the most money. In 1994, the U.S. government used one of their auction methods. This was to sell radio frequencies to phone companies. Many other countries have used similar methods since then.

Understanding Game Theory

Milgrom made important contributions to game theory in the 1980s and 1990s. Game theory studies how people make decisions when their outcomes depend on what others do.

Building a Good Reputation

In a 1982 paper, Milgrom and his colleagues showed how people build a "reputation." If someone acts cooperatively, others will want to cooperate with them too. This is like building trust. Even if a player isn't always cooperative, they might pretend to be. This encourages others to cooperate, which helps everyone. This idea helped start a whole new area of study in game theory.

How Repeated Games Work

Milgrom also studied "repeated games." These are situations where people interact many times. He showed how players can achieve good outcomes even when they can't see each other's actions perfectly. One way is to delay sharing information. Players can then review past actions and decide to reward or punish each other. This is called a "review strategy."

Designing Better Markets

Milgrom describes Market Design as a type of "economic engineering." It uses research, game theory, and computer programs. Its goal is to create better ways for people to trade and interact.

His work in this area includes three main parts:

Auction theory: How to design auctions so they work well.
Matching theory: How to match people or things together, like students to schools.
Simplifying messages: Making it easier for people to participate in markets.

Understanding Organizations and Information

Milgrom also studied how organizations work and how information affects decisions.

How Companies Motivate Workers

With Bengt Holmstrom, Milgrom looked at how companies can motivate their employees. They studied how to design fair payment plans. They found that simple payment plans can work best when employees can see how their performance changes over time.

They also showed that if employees have many tasks, giving too much incentive for one task can make them ignore others. This means that sometimes, it's better to have lower incentives overall. This helps ensure all tasks are done well. Their work has influenced how companies design jobs and pay.

The Power of Information

Milgrom showed how information can be "favorable." This means that if you learn something new, it makes you think a situation is better than before. He used this idea to explain important concepts. For example, the "winner's curse" in auctions, where the winner might have overpaid.

He also created a "persuasion game." Imagine a salesperson who knows a lot about a product. They can choose to share information, but they can't lie. Milgrom showed that the salesperson will usually share all the information. This is because if they hide something, buyers will assume the worst. This idea is called the "unraveling result." It helps explain why people often reveal information, even if it's not perfect.

How Organizations Are Structured

Milgrom worked with John Roberts to study organizations. They looked at how different parts of an organization work together. They found that activities are "complementary" when they work better together. For example, a company that changes its products often will benefit from training workers to be flexible.

They also studied why changes in organizations can be hard. If you change one part of a system, it might make other parts worse. This means that making big changes requires careful planning.

Milgrom also looked at "influence activities" in large organizations. This is when employees try to influence decisions to benefit themselves. This can be costly for the company. Milgrom showed that companies might limit managers' power to avoid these costs.

In 1992, Milgrom and Roberts published a textbook called Economics, Organization and Management. This book explains how organizations work using modern economic ideas. It is Milgrom's most-cited work.

Markets and Money

Milgrom also made important contributions to understanding financial markets and how people trade.

Understanding Securities Markets

With Nancy Stokey, Milgrom studied why people trade stocks and bonds. Their famous "no-trade theorem" showed that if everyone has the same information and only trades to make a profit, no trading should happen. This is because smart traders would expect to lose money if they traded with someone who had better information.

Later, Milgrom and Glosten explained why trading still happens. They showed that market-makers (people who help trades happen) lose money when trading with informed traders. So, they use a "bid-ask spread" (a difference between buying and selling prices) to make up for these losses from less informed traders. This helps explain how prices are set in markets.

Labor Markets and Jobs

In 1987, Milgrom and Sharon Oster looked at problems in job markets. They studied why some workers might have trouble showing their skills to new employers. They found that companies might benefit from keeping good workers in lower-level jobs. This could lead to lower pay for some workers, even if they had the same skills as others.

Later, with Bob Hall, Milgrom helped explain why job numbers change so much during economic ups and downs. They suggested that the way wages are negotiated affects how quickly companies hire. Their ideas helped solve a long-standing puzzle in economics about why employment changes so sharply.

Policy and Impact

Milgrom's work has had a big impact on real-world policies, especially in how governments sell valuable resources.

FCC Spectrum Auctions, 1993

The U.S. Federal Communications Commission (FCC) is in charge of giving out licenses for using radio waves. Before 1993, the FCC used slow processes or lotteries to give out these licenses. These methods were not very efficient. They also didn't allow the government to get money for the licenses.

In 1993, Congress allowed the FCC to hold auctions. Auctions could help sell licenses efficiently and bring money to taxpayers. However, no good auction design existed for this purpose.

Milgrom, along with Robert Wilson and others, helped design a new type of auction. This was called the "simultaneous multiple round (SMR) auction." This design allowed many licenses to be sold at the same time. It also let bidders see what others were doing.

Milgrom argued for a "simultaneous closing rule." This meant all parts of the auction ended at the same time. He also helped create an "activity rule." This rule made sure bidders stayed active in each round. If they didn't, they would lose their chance to bid. These rules helped make the auctions fair and efficient.

The SMR auction design has been used worldwide. It has helped governments sell radio spectrum, electricity, and natural gas. This has involved hundreds of billions of dollars. The U.S. National Science Foundation and the National Academy of Sciences have recognized this auction design as a major practical contribution of economic research.

FCC Incentive Auctions

In 2012, the U.S. Congress allowed the FCC to hold "incentive auctions." These auctions let TV stations sell their radio spectrum rights. The money from selling these rights to wireless companies would then pay the TV stations. Any extra money would go to the government. This was a new type of "double auction."

In March 2012, the FCC hired Milgrom to lead a team of economists. They advised the FCC on how to design these complex incentive auctions. His team helped create a market to move TV broadcast spectrum to wireless internet use.

Teaching and Philosophy

Milgrom has taught many economics courses. In the 1990s, he created a popular course on "The Modern Firm in Theory and Practice." This course was based on his 1992 book with John Roberts.

In the early 2000s, with Alvin E. Roth, Milgrom taught the first graduate course on Market Design. This course covered auctions, matching, and other related topics. It helped start the field of Market Design and has been copied by many universities.

Milgrom always emphasized what economic models could and could not do. He taught students to understand the assumptions behind these models. He believed that even simple models could help answer important questions about public policy.

Business Ventures

Milgrom has been involved in designing and running large-scale auctions for over two decades. He worked with Robert Wilson to propose the SMR auction used by the FCC in the 1990s. He has advised governments in many countries on spectrum auctions. He also advised companies like Microsoft and Google on their auction systems.

In 2006, Milgrom helped Comcast bid in an FCC auction. His special game-theory software helped them save almost $1.2 billion. The Economist magazine called this a "triumph."

In 2007, Milgrom co-founded Auctionomics with Silvia Console Battilana. This company designs auctions and advises bidders in various industries.

In 2009, Milgrom helped develop "assignment auctions and exchanges." These are fast ways to trade items, even considering things other than price.

In 2011, the FCC hired Auctionomics to design the complex incentive auction. FCC Chairman Julius Genachowski said Milgrom's team would help ensure the auctions were effective. Milgrom has also been awarded four patents related to auction design.

Political Views

In June 2024, Paul Milgrom and 15 other Nobel Prize in Economics winners signed an open letter. They argued that certain economic policies could cause inflation to rise in the United States.