Bob Wilson (MBA 1961, DBA 1963) attended high school in Lincoln, Nebraska, going on to Harvard College as a scholarship student. He didn’t love his undergraduate experience, and struggled to find meaning in his studies, bouncing from physics to philosophy to math. But Wilson did meet Howard Raiffa, a renowned scholar in the field of game theory and decision analysis, and followed him to HBS. There, Wilson completed the obligatory MBA before going on to his doctoral studies and the more mathematical, theoretical work he found so intriguing. That experience planted the seed for a 50-plus-year career at Stanford exploring new auction designs and formats—work recognized in 2020 with the Nobel Memorial Prize in Economic Sciences. In this special edition of Skydeck honoring recipients of the Alumni Achievement Award, Associate Editor Julia Hanna talks to Wilson about thinking beyond standard economic models, what collaboration looks like to him, and the work that has fundamentally changed the way governments and corporations buy and sell essential goods and services.

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[knocking]

Julia Hanna: At just after 2 in the morning on October 12, 2020, a home security system captured a moment that would go viral on social media.

[knocking]

Bob Wilson: Paul?

JH: Bob Wilson and his wife Mary had walked across the street to his colleague Paul Milgrom’s house to give him some urgent news.

BW: Paul?

Mary: Paul?

BW: It’s Bob Wilson.

Paul Milgrom: Yeah?

BW: You’ve won the—you’ve won the Nobel Prize. And so they’re trying to reach you, but they cannot, they don’t seem to have a number for you.

Mary: We gave them your cell phone number.

JH: Actually, they both had won.

PM: Wow.

JH: Wilson and Milgrom—Wilson’s former PhD student—had been awarded the 2020 Nobel Memorial Prize in Economics for improvements to auction theory and inventions of new auction formats. The Royal Swedish Academy of Sciences said “Their discoveries have benefited sellers, buyers, and taxpayers around the world.” For Wilson, the road to this very public, very global moment began quite simply and humbly, in Depression-era Nebraska.

BW: I was born in this little town of Geneva where my family had a paint mill, they had a business there. It went bankrupt during the Depression. I was born in ’37 and they went bankrupt in ’39. We had a family homestead that had been homesteaded earlier in Montana. So we moved to Montana until the war started. And then my dad got a job in Lincoln. So during the war, I was living in Lincoln, until he was drafted into the Navy. And we lived out in Ogallala with my cousins until finally my grandfather bought a house in York for us to live in. So this started a very happy childhood in York.

JH: Growing up, Bob and his brother had an outdoorsy childhood, riding their bikes and playing in the fields and creeks near town. But Wilson was also pretty industrious—selling catfish bait, raising pigeons, and other entrepreneurial ventures. For example, he figured out quickly that he could make more money selling ice cream to construction workers if he offered whole containers, not just individual bars. He started earning money at a young age.

BW: My first job was as a paperboy when I was 7. So I started delivering papers and I got paid $2.45 a week for delivering papers. I mean, I worked in a bottling plant and I got paid 75 cents an hour. It was just a little local bottlers, we’d collect bottles off of the country roads and clean them, he had a cleaning machine, and then we would fill them with cream soda. I worked, sacked groceries. I had a job continuously. I was always employed.

JH: What did you do with your money that you’d earned?

BW: Oh, so I was rather famous for this because I bought my own .22 rifle and then I bought a 16-gauge shotgun. I bought my own bicycle. This was a source of contention in the family because my brother, Chuck, being one year younger, kept getting left out of these things. He never had a job. Well, later on, he would sack at the grocery store with me. I still have out here, a nice set of MacGregor golf clubs that I bought with my money.

JH: In his teens however, Bob suffered an injury that changed him from an athletic, outgoing personality to more of an introvert.

BW: A key thing in my whole life was that I had a severe concussion when I was 14. We had four or five kids on each side of a creek and we were throwing old logs at each other. So the same guy who tackled me in football to break my leg, he was the one on my team who was behind me who threw a log and hit me from behind.

JH: Oh jeez.

BW: And it changed my personality for the latter years of high school. So I became sort of, I don’t know, nerdish and book-wormish, and stuff like that. And I had trouble with social things. You know, in later years, all that got corrected by taking an anticonvulsive drug, which I still take. But it was a factor, definitely, in my life, in that period.

JH: Despite that setback, Wilson was elected president of his high school class not long after his family moved to Lincoln, Nebraska, then went on to Harvard College. “Going to Harvard was a shock for me, a cultural shock,” he said in a February 2021 interview. “I was unprepared for it. Most of my fellow students had gone into prep schools and had lots of prior work and I just drifted along without a focus.” Wilson switched his course of study from physics to philosophy to math. But he found some direction through Howard Raiffa, a statistics professor who was moving over to HBS to develop a program in what would come to be known as managerial economics. Wilson wanted to study with Raiffa in the School’s doctoral program. But first he had to complete the MBA program, which wasn’t a great fit.

BW: It was not actually of much interest to me because it’s managerial, I’m a more scholarly academic. I wanted to go into the doctoral program. The case method, you know it’s sort of blah, blah, blah, blah. Talking about a case and the antipathy towards theory, the lack of a foundation in disciplines like economics and mathematics and so on, I thought was appalling. Okay. So on one WAC, you know, Written Analysis of Case. Okay. There’s a problem of competitive bidding. My way I wrote the paper used a bunch of mathematics. And I was given a flunking grade. And my view is, screw you, this is stupid that you have us discussing this competitive bidding case as though we’re supposed to just talk about it. We’re supposed to have this administrative point of view. And it’s like, this is inane to have us go through that when there’s a substantial body of useful, practical literature, about how to go about competitive bidding.

JH: Even so, Wilson graduated as a Baker Scholar, in the top 5 percent of his class. And with that MBA box checked—an experience he would later admit was helpful in working with consulting clients—Wilson was able to move on to his studies with Raiffa and others who were developing a new approach to using economic theory and mathematics to drive strategy and management decisions.

JH: And tell me what it was about Howard Raiffa that made you want to follow him.

BW: First of all, he was just a warm, loving man. He and Robert Schlaifer and John Pratt at the Harvard Business School were trying to develop this field we call statistical decision theory. And I was really interested in that. I was trying to take courses in economics that would give me kind of an economics perspective. I thought maybe that was an approach, but, you know, there are all these paradigms, economics is so locked in this paradigm of demand and supply and prices, clear markets, and things like that. A few years later after this, they started calling it operations research or management science. It was intended to use a lot of mathematics and probability, statistics, and so on, dealing with risky decisions. And in 1956, he had written this book with Duncan Luce called Games and Decisions, which was the definitive book to be studying in that field. And I was really interested in that, and I liked that. I liked a sort of analytical approach to multi-person decision problems. So I was following Howard and we were doing what one would call individual decision theory. But my whole later career was an attempt to try to establish a multi-person decision theory to address conflict, cooperation, social situations. And in the end, I got very involved in using game theory for that. Game theory is this formal mathematical theory of strategies used by players in, you know, well-defined games. Trying to solve a problem of cooperation, you know, under what circumstances selfish people would still find it useful to cooperate. Those questions motivated me really early on, but I had a very vague sense of it.

My dissertation at Harvard was just an algorithm for solving mathematical programming problems as mathematical optimization, subject to constraints. So it didn’t actually get into these deeper issues. But Howard was a huge help in that. So I had had so much connection with cases and case discussions. And then I did lots of consulting. I had connections in the business community and so on. So in later life, when I got involved in what subsequently came to be called, like auction design or market design and stuff like that, the fact that I wasn’t just a completely nerdy academic…I also had some connection by having gone to a business school. And, I can sort of talk to businessmen in their language if I needed to, that was a leg up in some of those encounters.

Nobel Committee: Different auctions have different objectives. Some sellers may want to maximize revenue. Other sellers use auctions as a tool to achieve other objectives. For example, to increase bank liquidity, to reduce emission, or to maximize some kind of public value. The auction theory provided by Paul Milgrom and Robert Wilson is key for understanding how these objectives can be reached.

JH: This is how the Royal Swedish Academy of Sciences introduced Bob Wilson and Paul Milgrom’s work on auction theory when it was announced they’d won the Nobel—work that has generated an estimated $1.5 trillion to date in worldwide government revenues through increased efficiencies in the sale of essential but difficult-to-auction entities ranging from radio wave frequencies to mineral and timber rights. Before the introduction of Milgrom and Wilson’s Simultaneous Multiple Round Auction in 1994, the FCC sold government-owned frequencies for wireless communications through applications and lotteries, which was costly and inefficient. The new auction format made it easier for bidders to bid on any portion of an item and reduced the likelihood of a bidder suffering the winner’s curse for overestimating the value of an item—and overpaying for it.

Nobel Committee: In the 1960s, Robert Wilson started to investigate auctions with a common value. That is, a value which is unknown beforehand, but in the end is the same to all bidders. Consider an auction for fishing rights, where different bidders compete for fishing quotas. The value of the fishing quota is not only determined by the volume, but also by the price for fish.

BW: I’d worked on auctions. I had some of the early papers on the subject and then I had this brilliant student, Paul Milgrom, who wrote a superb dissertation on the subject and then later became the world’s expert on auctions. So when the FCC was going to consider the possibility of an auction as a way of allocating spectrum licenses, Pacific Bell hired me as a consultant, and then I brought along Paul. Then the FCC announced a thing called a notice of proposed rulemaking…they have this formal process by which people can submit proposals as to how they ought to do things. And Pac Bell said, fine, go ahead. If you guys think you have some ideas about it, do it.

Because we could see that there were really stupid ideas being proposed by professional auctioneers. Like they would auction these licenses, one by one, every 10 minutes and with a hammer, you know, going, going, gone kind of thing. Paul and I, we know a lot about auctions, we could propose something better. And Paul, in particular, I think he was so much a driving force in this. And some of the aspects of the auction design were so innovative, and they came from him, and we made a proposal to the FCC, and that was the one they adopted. There was a similar proposal by another guy, Preston McAfee. So sometimes it’s sometimes called a Milgrom Wilson design. Sometimes the Milgrom Wilson McAfee design. It’s a simultaneous ascending auction and it has these special rules, activity rules, and bid increments. And the way it closes, it doesn’t have any termination other than it stops when there are no new bids, things like that. But there were other sort of simple features that are very important. We said it should move very slowly because each of these decisions involve so much money for the bidders that they have to go to their, some sort of finance committee or, or an executive committee of the board to get approval for these bid increments, because they’re so large.

JH: I asked Wilson how he gets inside the standard economic paradigms and frees himself to think about them in ways that generate such groundbreaking ideas.

BW: Well, so I was always disappointed in standard economic theory. This idea that there’s, you know, supply and demand curves and they intersect, and that’s the market price and things like that. So I guess I could give a lot of credit to the Harvard Business School training, you know of really looking in detail… There are actual people that are, you know, handling orders, setting prices, arranging trades. I mean, there’s a lot going on inside price determination. And, looking inside, it’s just a matter of seeing how the actual process works in very great detail, and who’s making decisions, what information do they have, what resources can they use.

There’ve been many junctures in my career where it’s just a matter of looking inside something that economists treat as being a black box, look inside to see what’s going on. So an auction’s a perfect example of a price formation process. Like I worked with oil exploration leases, the value of exploring a tract is pretty much the same for everybody, but they have quite different information as to what that value is.

And so looking inside that decision process, I realized that I’m estimating how much oil is under the ground using, say, seismic data that’s very noisy. And the person I’m bidding against, the other companies, they also are estimating the same thing using equally noisy seismic data, or gravimetric data, or things, you know, indirect measurements. They have no way of seeing what’s under the ground, they can only estimate what’s under the ground. Another aspect of that, by the way, is it reveals that the bidder who's the most optimistic in their estimates tends to win. And that’s what we call the winner’s curse. You know, the over-estimator is the winner. So it’s looking inside those things. That’s what initially interested me.

JH: Wilson has been on the faculty of Stanford’s Graduate School of Business since 1964. With multiple publications and honors to his credit, he’s a scholar who prefers to work alongside colleagues who complement his skills, often citing their contributions above his own.

JH: Can you talk a little bit about what collaboration looks like for you just on a sort of day-to-day, practical level?

BW: My main collaborative relationships over the years have been that I have ideas, vague ideas, conjectures, and things like that. And I team up with a guy who’s really good in rigor, mathematics, logic, precision. I have these very strange ideas. They tend to be very vague because I’m a very speculative thinker. And they’re very precise thinkers. So you should think of it as complementarity—that I’m speculative and they’re precise. Paul Milgrom, he’s a real genius. We’ve only worked together on one project, which was the spectrum auctions. And, this is, I guess you’d say again, a complementarity, but Paul is a really creative force in innovations in auction design.

JH: Wilson humorously refers to his Nobel-Prize winning students, who include Milgrom, Al Roth, and Bengt Holmstrom, as “my trifecta.” With that track record, he’s often asked for his secret sauce in mentoring others. It’s really not so complex, he says. “Three of my students have won the Nobel Prize, but when these brilliant young people pass through our program, it’s not my doing. I do have the view that the key thing with doctoral students is to offer positive reinforcement and encouragement.”On the day the Nobel Prize was announced, then-HBS Dean Nitin Nohria shared a sentence from what Howard Raiffa wrote about his own former student for Wilson’s 65th birthday, in 2002: “I’ve had a lot of doctoral students in my long academic career and Bob Wilson remains the brightest of the bright and the nicest of the nice.” With so many milestones and accolades in his career, I asked Wilson what he hopes will live on after he’s gone. His response was characteristically low-key.

BW: I would always think that I’ll just disappear into history the way everybody else does. Twenty years from now I’ll be forgotten. But I used to really have this desire though to write articles that would still be of interest, that would be read 20 years from now. Certainly, in the early years of my career, there was so much of the literature of my field that was easily forgotten within months or a year. Their lifetime they had, in terms of influencing other people’s thinking, was so short [laughs] that maybe you’d say it has no impact at all. I would like to have things that get, you know, referenced or cited or, at least the ideas have an impact 10, 20, 30 years from now. I’d like that.

This episode of Skydeck was edited by Jocelyn Gonzalez from PRX productions. Skydeck is produced by the External Relations Department at Harvard Business School. It is available on iTunes or wherever you get your favorite podcast. For more information or to find archived episodes, visit alumni.hbs.edu/skydeck.

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