Paul Milgrom and Robert Wilson were named today as the 2020 winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Milgrom is, simply put, a great economist. Among microeconomic theorists of his (and my) generation, none have written as many great and seminal papers in as many areas as has Paul. His Wikipedia page gives an outline of all the different subjects on which he has written and, to use baseball terminology, his slugging average is better than that of Barry Bonds.
But this short appreciation is about Bob Wilson, whose own work is less wide-ranging than Paul’s but whose impact on the discipline of economics, in my opinion, puts him in the company of giants such as Ken Arrow and Paul 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.
Beyond this, Bob has been the intellectual leader in the application of economic theory to issues in market microstructure, managerial accounting, and marketing. The intellectual orientation of Stanford GSB is due to Bob’s example and his leadership. And what Bob “created” at Stanford GSB is now the gold standard at schools of management around the world.
There is an interesting issue of causation here: Bob has a DBA from Harvard Business School, and he taught for many years in the MBA classroom at Stanford GSB. I don’t think there can be any doubt that his research orientation — and in particular his “engineer’s perspective” — is in part the result of teaching in a professional school and interacting with his colleagues there. But, having been able to observe the evolution of the Stanford GSB environment over the past 40-plus years, I believe his impact on the environment has been greater than the impact of the environment on him.
I admit that I am biased. In the first quarter I attended Stanford (in the Department of Operations Research) in 1972, I took a course from Bob; it was the first of many, leading to a strong case of hero worship that persists to this day. But, taking my bias into account, when it comes to economic theorists who have made a difference in our discipline, I regard Bob as the post-Kenneth-Arrow No. 1. The only thing wrong with this Nobel Prize is that it should have come 20 or so years earlier.
— David Kreps