Why auction design matters (ft. Nobel economist Paul Milgrom)

Well, and I'll tell you, not only has he written, you know, landmark papers in basically everything in economic theory, but every single thing he's ever worked on is the most exciting thing he's ever worked on.

I mean, he just has this, like, in-incredible energy and, like, love for all of it.

I gotta ask, so, um, around the time he won the Nobel Prize, along with Bob Wilson, you were actually a coauthor, uh, on sort of a survey, basically-

Yes

... of, of his work as, as part of that.

So can you talk a little bit about the process of writing that and just what was it like?

Oh, it was so fun.

It was so much fun.

Yeah.

So the, uh, the Scandinavian Journal of Economics puts out a survey article on the year's economics Nobel laureate or laureates.

Tommy Anderson, who, who was the handling editor and, and coauthor and, and collaborator with my, my friend and, and coauthor Alex Tabarrok, you know, sort of network of networks, reached out and basically asked whether five of us together, all of whom had in one fashion or another worked with Paul and/or Bob, Bob Wilson, uh, who, who won the prize jointly with Paul, uh, would, would work together to write a survey, and it was, uh, incredible.

So, uh, Alex Tabarrok, Piotr Dworzcak, Muhammad Akbarpor, Shengwu Li, and I sat down to do this.

That's quite the dream team right there, so.

Uh, I, like, I was astounded to be included in the list with those other four.

[laughs] Like, um, it was incredible.

So first of all, like, you know, we, we did our homework, right? Like, we tried, I would say, to read all of Paul and Bob's papers, discovering that even though we thought...

Like, one of the weird things is, like, you know, most of them were, were Milgrom and/or Wilson students.

Um, all of us had, like, grown up in grad school, like, reading their work, and I felt like I was still discovering I only knew, like, 25% of it, even on the topics I'm an expert in, right? It was like, you know, oh, wait, like, Milgrom introduced that idea in auctions too? Like, who knew? Like, what? You know, and then we interviewed them, so we had these long sit-down conversations to hear about the generation of the ideas and how they all fit together.

Because one thing that it's possible to look at the body of work and not really understand without the context is they weren't just, like, writing papers in auction theory, right? Like, Paul Milgrom, yes, he was writing, like, what are now classics of economic theory on auctions and information and different forms of exchange, but they were in constant dialogue with applied problems, and a lot of the most fundamental ideas in these auction theory papers were coming out of an, either a thing he had observed in the field or a question, sort of like a thing that you needed to know in order to be able to take practical market design to the next level and that we didn't have a theory language to speak about, and so that, you know, precipitated papers.

So I'm, I'm sure we'll touch on a, a bunch of the things he's worked on, so maybe we should just spend a little time laying some groundwork.

One thing I think would be fun to ask about is actually a very important, you know, paper in, in effect, finance, uh, by Glosten and Milgrom.

Mm-hmm.

Uh, and, and in particular, like, the idea, it's almost like, can you really probe the content of an efficient market hypothesis and really trying to understand kind of in a detailed way how prices form in financial markets.

One of the things we learned in that survey article, when we were writing that survey article, was that, like, why they got into auctions in the first place, Paul was really curious about- The mechanisms and mechanics of price formation, right? Like, how is it that markets actually f- achieve prices?

Which I just have to say, it-- that's almost like a very, uh-- obviously I'm biased, I'm a trained computer scientist, but I think of that as, like, a super computer science-y way-