Nobel In Economics: What Is Auction Theory?

Nobel In Economics: What Is Auction Theory?

Paul R. Milgrom and Robert B. Wilson were awarded Nobel Prize in Economics for improving the auction theory. We see auctions all around us – from IPL player auctions, to selling antique items, to spectrum allocation. Let’s understand what ‘the auction theory’ is and how Milgrom and Wilson contributed to its improvement.

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Nobel In Economics
This year Paul R. Milgrom and Robert B. Wilson were awarded Nobel Prize in Economics for improving the auction theory. So far, 51 times the Nobel Prize in Economics has been awarded and 89 laureates have been honored. Last year Indian-American economist, Abhijit Vinayak Banerjee, his wife Esther Duflo, and Michael Kremer won Nobel Prize in Economics for “their experimental approach to alleviating global poverty”.

What Are Auctions?
Auctions are all around us. It won’t be an understatement to say IPL has acquainted most of us to auctions. It is a process where people bid to purchase any goods and services. In Economics, it is considered one of the efficient mechanisms for distributing resources. Moreover, internet platforms have made auctions very dynamic and the bidding process very easy.

In auction different terminologies are used such as common value, Dutch auctions, etc. Let’s understand what some of them mean.

Common Value: Common value is inferred as the true value of the product that is perceived to be the same for everyone. Therefore, the actual value of the product is the same for all bidders. Examples of this are spectrum auction, drilling auction, etc.

Private Value: It is referred to as the independent valuation of the product. Each bidder has a different ‘perceived value’ of the product.

English Auction: In an English auction, bidding starts with low prices and increases over time. IPL Auctions are an example of the English auction.

Dutch Auction: In a Dutch auction, bidding starts with a high price and descends over time. The price descends until someone is ready to buy the item or if it reaches a predetermined reserve price.

What Is The Auction Theory?
Auction Theory was first academically presented by William Vickrey, who developed the Vickrey Auction and even won the Nobel Prize in 1996 for advanced work in auction theory. The auction theory focuses on three main features of auctions:
– The first feature talks about the type of bidding, the number of times one can bid, and pricing
– The second feature talks about how bidders value auctioned objects, and
– The third feature talks about how the information a bidder has about the object affects the auction.

Vickrey’s auction was a closed-bid auction in which no bids were disclosed. In it, the highest bidder (winner) pays the second-highest price.

Winner’s curse is a phenomenon in which a person for whom the private value of a product is higher may end up paying much higher than the actual value. Wilson showed how bidders’ attempts to escape the winner’s curse may result in lower revenue for the seller or failure of the auction. Milgrom’s work showed that bidders get leverage when they have information.

Extension To Auction Theory
Milgrom and Wilson extended the English Auction format to more than one item, and multiple rounds and named it Simultaneous Multi-Round Format. In this format, bidders can bid for multiple items in each round. At the end of a round, the highest bid and the bidder on each item is declared. Sometimes all the bids are disclosed after a round, or sometimes only the highest bids are disclosed (like the closed-bid auction of Vickrey) – depends on the auction rules or activity rules. Auction ends when there is no one raising the bid. The highest bidders for each item then receive it for the bid price.

Robert Wilson and Paul Milgrom showed the application of Auction Theory. They designed an auction strategy for allocating radio spectrums to telecom operators in 1994 in US. It proved to be beneficial to all the three stakeholders i.e. government, telecom companies, and public. Between 1994-2014, US government earned $120 billion using Wilson and Milgrom’s auction model.

This strategy is widely used across countries and across sectors such as electricity and natural gas, which require efficient allocation due to their limited supply.

  • The word “auction” is derived from the Latin ‘auctum’ meaning, “I increase”. For most of history, auctions have been a relatively uncommon way to negotiate the exchange of goods and commodities. The practice picked up after the 17th Century.
  • A candle auction is a variation on the typical English auction that became popular in the 17th and 18th centuries. In a candle auction, the end of the auction is signaled by the expiration of a candle flame, which was intended to ensure that no one could know exactly when the auction would end and make a last-second bid.
  • In 2008, the US National Auctioneers Association reported that the gross revenue of the auction industry for that year was approximately $268.4 billion, with the fastest growing sectors being agricultural, machinery, and equipment auctions and residential real estate auctions.
  • Emma Bailey was the first American woman auctioneer, and the first woman admitted to the National Auctioneers Association. Bailey held her first auction in 1950 and continued her career for almost 20 years.

Nobel Prize: What Is It & Who Are The 2020 Winners

Nobel Prize: What Is It & Who Are The 2020 Winners

Whether you are a Science or Literature enthusiast or even a crusader for Peace, you must have definitely heard about the famous Nobel Prize. So what is the story of its origin? Who were bestowed with the honour of 2020 Nobel Prize, for being recognized for their positive contributions to the society?

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What Is The Nobel Prize?
It is set of prestigious, annual international awards, bestowed in recognition of academic, cultural, or scientific advances. The will of the Swedish chemist, engineer and industrialist Alfred Nobel established the 5 Nobel prizes in 1895

What Did He Write In His Will?
Alfred wrote how the Royal Swedish Academy of Sciences was to take charge of the Physics and Chemistry prizes, the Karolinska Institute for the medicine prize, the Swedish Academy for the Literature prize and the Peace prize for the Parliament of Norway.

What About The Prize In Economic Sciences?
Established in 1968 by a donation from Sweden’s central bank Sveriges Riksbank to the Nobel Foundation to commemorate the bank’s 300th anniversary, this prize is not mentioned by Alfred in his will. So it is not a Nobel Prize technically. However, it is administered by the Nobel Foundation itself, in the same ceremony as the Nobel Prize. 

What Are The Rewards?
Apart from being recognized for their positive contributions to the betterment of society, Nobel Laureates are honoured with prize money of US$986,000 (2018), a medal, and a diploma. As of 2019, 597 prizes have been given to 950 laureates.

2020 Nobel Prize In Physiology Or Medicine

  • Laureates: Drs. Harvey J. Alter, Michael Houghton and Charles M. Rice.
  • Received for the discovery of the Hepatitis C virus. The committee said that they had “made possible blood tests and new medicines that have saved lives.”

What Is Hepatitis C?
It is a blood-borne pathogen affecting 71 million people worldwide and it can cause severe liver inflammation, or hepatitis. It is typically transmitted through shared or reused needles and syringes, infected blood transfusions and sexual practices that lead to blood exposure.

Read full story here: Discovery Of Hepatitis C By 2020 Medicine Nobel Laureates

2020 Nobel Prize in Physics

  • Laureates: Roger Penrose, Reinhard Genzel and Andrea Ghez.
  • Received for improving the understanding of the universe, including work on Black Holes and discovery of a supermassive compact object at the centre of our galaxy.

Read full story here: Nobel Feature: Understanding The 2020 Nobel Prize In Physics

2020 Nobel Prize in Chemistry

  • Laureates: Emmanuelle Charpentier and Jennifer A. Doudna.
  • Received for development of CRISPR-Cas9, a method for genome editing, that can help to cure sickle cell disease and congenital blindness.

What Is CRISPR Genome Editing?
CRISPR or ‘genetic scissors’ method, uses a family of genomes of prokaryotic organisms like bacteria, to detect and destroy similar bacteria during subsequent infections. Thus it can edit DNA in human cells via a petri dish.

Read full story here: Rewriting The Code Of Life With CRISPR-CAS9

2020 Nobel Prize in Literature

  • Laureate: Poet and Essayist, Louise Glück.
  • Received for “her unmistakable poetic voice”. She has already won the Pulitzer Prize and the National Book Award, for tackling themes like childhood and family life, often reworking Greek and Roman myths.

2020 Nobel Prize in Peace
The World Food Programme has been awarded the Nobel Peace Prize for 2020, for its impressive efforts to combat the food crisis in the Covid-19 pandemic. By honouring this program, the Nobel Committee has also sent a message to governments around the world, to not cut financial contributions to international humanitarian groups.

2020 Nobel Memorial Prize in Economic Sciences
Paul R. Milgrom and Robert B. Wilson have been awarded the Nobel Memorial Prize in Economic Sciences, for 2020, for inventing new auction formats for the sale of goods and services and improving the auction theory.

  • The Abel Prize is a Norwegian prize awarded annually by the King of Norway to one or more outstanding mathematicians. It is named after Norwegian mathematician Niels Henrik Abel and directly modeled after the Nobel Prizes.
  • John Nash was a mathematician who made fundamental contributions to game theory, differential geometry and the study of partial differential equations. His theories are widely used in economics. He is the only person to be awarded both the Nobel Memorial Prize in Economic Sciences and the Abel Prize.
  • Marie Curie was a Polish and naturalized-French physicist and chemist who conducted pioneering research on radioactivity. She was the first woman to win a Nobel Prize, the first person and the only woman to win the Nobel Prize twice, and the only person to win the Nobel Prize in two scientific fields.
  • The Curie family is a Polish and French family with a number of illustrious scientists. Several members were awarded the Nobel Prize, including physics, chemistry, and the Nobel Peace Prize. Pierre and Marie Curie and their daughter Irène Joliot-Curie, are the most prominent members.

Discovery of Hepatitis C By 2020 Medicine Nobel Laureates

Discovery of Hepatitis C By 2020 Medicine Nobel Laureates

Nobel Prize in Physiology or Medicine 2020 has been awarded to Harvey J. Alter, Michael Houghton and Charles M. Rice, for their discovery of the Hepatitis C virus. What is the hepatitis family of viruses? What is the significance of this finding?

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What Is The Hepatitis Viral?
It is an inflammation of the liver. The condition can progress to fibrosis, cirrhosis, or liver cancer. It is characterised by yellow discoloration of the skin and eyes.

How Many Types Of Hepatitis Virus Exist?
FiveHepatitis A and E are caused by intaking contaminated food or water. Hepatitis B, C and D occur as a result of bodily contact with infected fluids via invasive medical equipments like syringes.

How Fatal Is Hepatitis C?
WHO estimates there are more than 70 million cases of hepatitis worldwide and 400,000 deaths each year. Hepatitis C causes spider-like blood vessels on the skin (spider angiomas), fatigue, and bloating.

How Did They Discover Hepatitis C?
Harvey J. Alter, one of the laureates, was studying hepatitis in patients who had received blood transfusions. Tests for Hepatitis A and B infections showed that they were not the cause and the mysterious new illness was termed “non-A, non-B” hepatitis.

The new virus couldn’t be isolated for several years using traditional techniques for virus isolation. So Michael Houghton and his team created a collection of DNA fragments from the blood of an infected chimpanzee and found a novel RNA virus belonging to the Flavivirus family and named it Hepatitis C.

What About Charles Rice?
Charles used genetic engineering to understand if this new virus alone could cause hepatitis. He generated an RNA variant of the virus and injected it into the liver of chimpanzees. The virus was then detected in the blood and the chimpanzees exhibited changes similar to those seen in humans infected with the disease.

Is Hepatitis C Curable?
Yes, as per WHO, 95% cases of Hepatitis C are curable, if treated using direct acting antiviral (DAA) tablets. The doctor assesses the patient’s liver, to check the severity of damage , either with a blood test or a fibroscan and assigns the dosage of DAA accordingly. At the end of the treatment, a blood test is done to see if the virus has been cleared and a second blood test 12 or 24 weeks, after the treatment has stopped.

Why Is The Award Important?
The Nobel Committee chose to recognize the work done by virologists, whose discoveries led to the development of antiviral treatments. This step would help boost the morale of researchers working in the Covid-19 pandemic caused by SARS-COV-2 virus.

What Would Be The Next Step?
A world with access to more affordable testing methods and viral therapeutics, that can help improve the quality of human life and reduce deaths.

  • Boceprevir is a protease inhibitor used to treat hepatitis caused by hepatitis C virus genotype 1. It was initially developed by Schering-Plough, then by Merck after it acquired Schering in 2009. It was approved by the FDA in May 2011.
  • Emil von Behring was a German physiologist who received the 1901 Nobel Prize in Physiology or Medicine, the first one awarded in that field, for his discovery of a diphtheria antitoxin. He was widely known as a “saviour of children,” as diphtheria used to be a major cause of child death. 
  • The first woman to receive the Nobel Prize in Physiology or Medicine was Gerty Cori, who received it in 1947 for her role in elucidating the metabolism of glucose, important in many aspects of medicine, including treatment of diabetes.

Nobel Feature: Understanding The 2020 Nobel Prize in Physics

Nobel Feature: Understanding The 2020 Nobel Prize in Physics

This year the Nobel Prize in physics went to 3 people: One half of the prize went to Roger Penrose, for understanding black hole formation. The other half went to Reinhard Genzel and Andrea Ghez for their discovery of supermassive objects at the centre of Milky Way. Spotlight has been thrown on an Indian Physicist, Amal Raychaudhuri and his contributions as well. Let us delve deeper into each of their intriguing stories.

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Early History Of Black Holes
In the 18th century, John Michell and Pierre-Simon Laplace speculated that dense, invisible, dark stars could have high gravity that did not let even light escape. In the 19th century, Karl Schwarzschild further found a feature of these ‘stars’, later called the event horizon.

Black Hole Fortnite GIF - BlackHole Fortnite - Discover & Share GIFs | Black  hole gif, Black hole, Black hole wallpaper
Black Hole, Source: GI

What Is A Black Hole’s Event Horizon?
It is linked to the object’s escape velocity – the speed needed to exceed and escape the black hole’s gravitational pull. The closer something gets to a black hole, the greater speed is needed to escape that massive gravity. So the event horizon is the boundary around the black hole where the escape velocity surpasses the speed of light.

Then What Happened?
In the 1930s, an Indian researcher, B. Datt, and separately, Robert Oppenheimer and Hartland Snyder, made the first calculations of the gravitational collapse of a star, with the assumption of spherical symmetry.

What Is Spherical Symmetry In Physics?
It means a uniform sphere rotated about its center will appear exactly as it did before the rotation. Thus the axis of the sphere or in this case, a star, will preserve how it “looks”.

What Did Roger Penrose Discover?
One of the three laureates of the 2020 Nobel Prize in Physics, Penrose conceptualised the formation of black holes having different symmetries, via the Penrose-Stephen Hawking singularity theorem, and can also be confirmed by Einstein’s General Theory of Relativity.

What Is Singularity?
At the center of a black hole, the gravity is so strong that, space-time becomes distorted and the curvature becomes infinite, beyond which physics no longer exists and forms the singularity. Penrose showed that if the light becomes trapped inside such a region and cannot escape, stars will collapse and form a black hole.

Who Was The Indian Behind This?
Kolkata-born physicist Amal Kumar Raychaudhuri. The Lev Landau–Raychaudhuri equation proves that gravitation is a universal attractive force between any two bits of mass-energy. This equation is a fundamental lemma for Penrose–Hawking singularity theorems, and is confirmed by General Relativity and Newton’s theory of gravitation.

What Is A Supermassive Black Hole?
It is the largest type of black hole, with mass on the order of millions to billions of times the mass of the Sun. Eg: Abell 85, that packs the mass of 40 billion suns.

Black Hole At The Center Of The Milky Way
The other two laureates, Reinhard Genzel and Andrea Ghez observed some thirty stars, for nearly three decades. They found that the stars move in perfect elliptical orbits, particularly one named S2. Given its calculated mass of about 4 million solar masses, and its invisibility, it was deduced that it is a supermassive black hole.

  • Kip Thorne identifies the “golden age of general relativity” as the period roughly from 1960 to 1975 during which the study of general relativity entered the mainstream of theoretical physics. During this period, many of the concepts and terms which continue to inspire the imagination of gravitation researchers  were introduced, including black holes and ‘gravitational singularity’.
  • The first image of a black hole, the supermassive one at the center of galaxy Messier 87, was published by the Event Horizon Telescope Collaboration on 10 April 2019. The image instantly went viral on the internet due to mass media and meme culture that followed it.
  • Karl Schwarzschild was a German physicist and astronomer. Schwarzschild provided the first exact solution to the Einstein field equations of general relativity, for the limited case of a single spherical non-rotating mass, which he accomplished in 1915, the same year that Einstein first introduced general relativity.

Nobel Prize: What Is It & Trump Nomination

Nobel Prize: What Is It & Trump Nomination

With US President Trump being nominated for the Nobel Peace Prize, let us have a look at some factors behind his nomination. Let us also understand what the Nobel Prize is and how it functions .

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Trump For Nobel Peace?
US President Donald Trump was recently nominated for the 2021 Nobel Peace Prize for his “contribution for peace between Israel and the United Arab Emirates (UAE)”. He was nominated by Christian Tybring-Gjedde, a Norwegian parliamentarian, who had earlier nominated Trump for the prize in 2019. The previous nomination from Tybring-Gjedde came due to Trump’s work regarding “peace and reconciliation between North and South Korea”.

On 13 August, 2020, Israel and the UAE agreed to establish official relationships with each other, in which Trump acted as a mediator in the deal. Previously, the UAE did not recognize Israel and backed Palestine in its conflict with Israel.

Nobel Prize – What Is It?
Nobel Prize was founded by Alfred Nobel – a scientist who also had interest in business, literature, and several other fields. In 1895, Nobel directed in his will to utilize his wealth for “prizes in physics, chemistry, physiology or medicine, literature, and peace”.

Every year, Academicians, scientists, previous Nobel Laureates, politicians, etc nominate candidates for the Prizes. These Nobel Prizes are managed by the following institutes:

  • The Royal Swedish Academy of Sciences for Physics and Chemistry.
  • Karolinska Institutet for Physiology/Medicine.
  • Committee of five persons elected by the Norwegian Parliament for the Peace Prize.
  • The Swedish Academy for Literature.

In 1968, Sveriges Riksbank established a Prize in Economic Sciences in Memory of Alfred Nobel. In the following year, the Royal Swedish Academy of Sciences was given the task to select Economic Sciences Laureate.

Also Read: Nobel Prize: Controversies

  • In a submission not intended to be taken seriously, an antifascist member of the Swedish parliament nominated Adolf Hitler for the Nobel Peace Prize 1939. But the nomination was cancelled and no prize was awarded in that year to anyone for peace. 
  • Geir Lundestad, Secretary of Norwegian Nobel Committee in 2006 said, “The greatest omission in our 106-year history is undoubtedly that Mahatma Gandhi never received the Nobel Peace prize. Gandhi could do without the Nobel Peace prize, [but] whether the Nobel committee can do without Gandhi is the question”. In 1948 (the year of Gandhi’s death) the Nobel Committee made no award, stating “there was no suitable living candidate”. 
  • Rabindranath Tagore became in 1913 the first non-European as well as the first lyricist to win the Nobel Prize in Literature. He reshaped Bengali literature and music, as well as Indian art with Contextual Modernism in the late 19th and early 20th centuries.