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Auction theory is a branch of applied economics that deals with how bidders act in auctions and researches how the features of auctions incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost.
In auction theory, particularly Bayesian-optimal mechanism design, a virtual valuation of an agent is a function that measures the surplus that can be extracted from that agent. A typical application is a seller who wants to sell an item to a potential buyer and wants to decide on the optimal price.
From 2007 to 2009, he was Swiss Finance Institute professor at the Swiss Federal Institute of Technology, Lausanne (EPFL). In 2013, he moved from Caltech to the Eccles School of Business of the University of Utah , and in 2016 on to the University of Melbourne (Australia), where he was professor in experimental finance and decision neuroscience ...
Milgrom is an expert in game theory, specifically auction theory and pricing strategies. He is the winner of the 2020 Nobel Memorial Prize in Economic Sciences, together with Robert B. Wilson, "for improvements to auction theory and inventions of new auction formats". [2] [3] He is the co-creator of the no-trade theorem with Nancy Stokey.
His book, Combinatorial Auctions, edited with Yoav Shoham and Richard Steinberg, has more than 1,300 citations. The book explains why and how to conduct auctions with package bidding. [14] He has provided advice on electricity auctions and electricity market restructuring in New England, Alberta, Colombia, the UK, France and New Zealand.
The linkage principle is a finding of auction theory. It states that auction houses have an incentive to pre-commit to revealing all available information about each lot, positive or negative. The linkage principle is seen in the art market with the tradition of auctioneers hiring art experts to examine each lot and pre-commit to provide a ...
Vickrey was the first to use the tools of game theory to explain the dynamics of auctions. [5] In his seminal paper, Vickrey derived several auction equilibria, and provided an early revenue-equivalence result. The revenue equivalence theorem remains the centrepiece of modern auction theory. The Vickrey auction is named after him. [5]
One of Athey's best-known works that deals with auctions is called “Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions." In this paper, Athey works with Johnathan Levin and Enrique Seira. She and her peers were interested in testing to see if the participation effects on auction were important.