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Illustration: Sarah Grillo/Axios

Economics is disparaged as "the dismal science" for good reason. And governments are rarely upheld as paragons of efficiency. But Paul Milgrom and Robert Wilson, the winners of this year's Nobel Prize in economics, have helped governments around the world create hundreds of billions of dollars of value with an astonishing level of sophistication and efficiency.

Why it matters: The auctions designed by the winners of this year's prize were initially used to allocate electromagnetic spectrum for cellphone communication. Since then, they've been used to price everything from airport landing slots to carbon-emission credits, in a manner that is fair, efficient, and effective.

The big picture: While auctions have been around for millennia, the two standard mechanisms — English auctions, where the price rises until there's only one bidder left, and Dutch auctions, where the price falls until a bidder emerges — can sometimes be unfair or inadequate.

  • For example: If two identical items are auctioned successively, they can often sell for very different prices. Or if a certain bidder values a certain combination of items while not particularly wanting any one on its own, it's hard to put together a good bidding strategy.

Between the lines: While nearly all auctions attempt to create as much value as possible by assigning an object to the buyer who can make the best use of it, government auctions also have to ensure they don't create monopolies or other market distortions.

  • The laureates' inventions, including the Simultaneous Multiple Round Auction, helped solve all of these problems — and also raised hundreds of billions of dollars that would otherwise have to have been levied in taxes.

Be smart: You trigger state-of-the-art auctions almost every time you visit a website. Most online advertising these days is sold via real-time bidding, which means that the ad is sold after you navigate to the page in question. Advertisers bid on reaching your particular eyeballs, reading your particular device.

  • Milgrom is involved in those auctions, too, theorizing how best to structure them and proposing a “modified second bid” design as the best way to maximize efficiency.

The bottom line: For most of the Cold War, governments would use game theory mainly for national defense. Auction design and strategy, which is a subset of game theory, is not only more socially useful than mutual assured destruction, it's also more socially useful than nearly everything else in economics.

Go deeper

Tech scrambles to derail inauguration threats

Illustration: Sarah Grillo/Axios

Tech companies are sharing more information with law enforcement in a frantic effort to prevent violence around the inauguration, after the government was caught flat-footed by the Capitol siege.

Between the lines: Tech knows it will be held accountable for any further violence that turns out to have been planned online if it doesn't act to stop it.

Dave Lawler, author of World
1 hour ago - World

Uganda's election: Museveni declared winner, Wine claims fraud

Wine rejected the official results of the election. Photo: Sumy Sadruni/AFP via Getty

Yoweri Museveni was declared the winner of a sixth presidential term on Saturday, with official results giving him 59% to 35% for Bobi Wine, the singer-turned-opposition leader.

Why it matters: This announcement was predictable, as the election was neither free nor fair and Museveni had no intention of surrendering power after 35 years. But Wine — who posed a strong challenged to Museveni, particularly in urban areas, and was beaten and arrested during the campaign — has said he will present evidence of fraud. The big question is whether he will mobilize mass resistance in the streets.

Off the Rails

Episode 1: A premeditated lie lit the fire

Photo illustration: Sarah Grillo/Axios. Photo: Chip Somodevilla/Getty Images

Beginning on election night 2020 and continuing through his final days in office, Donald Trump unraveled and dragged America with him, to the point that his followers sacked the U.S. Capitol with two weeks left in his term. Axios takes you inside the collapse of a president with a special series.

Episode 1: Trump’s refusal to believe the election results was premeditated. He had heard about the “red mirage” — the likelihood that early vote counts would tip more Republican than the final tallies — and he decided to exploit it.

"Jared, you call the Murdochs! Jason, you call Sammon and Hemmer!”