‘I can have radical ideas because people listen to me’ – interview with Paul Milgrom

In your plenary talk at the CMID-2024 conference at Corvinus, you spoke about two applications for property rights: the water supply market, and radio spectrum auctions. Can you tell what were the main challenges? 

Paul Milgrom: When water is used on the surface, much of it returns. It doesn’t get used up. It goes back down into the ground, where it goes back into a river or an aquifer and gets used by the same molecules repeatedly. That’s very different from any other resource and nothing about how water rights were traditionally done, took advantage of that because we couldn’t measure use. We didn’t know anything about hydrology before and we had a system that worked when water was ample, but water isn’t ample anymore. We are overusing our resources. We’re drawing down the aquifers too far. The climate change is affecting the amount of water that comes down.  

We have the existing property rights in the US, which are protected under the US Constitution from way back and these rights were created based on what made sense for historical use. For example, if you were using water and somebody else came along later, their use can’t interfere with your use. Those things were easy to enforce when there was no way to measure, how much water was being used, and there was no way to measure the hydrology water.  

So, it is a huge current challenge in market design to find new methods for measurement methods that are in harmony with the law.  

In your opinion how can market design provide solutions to our modern world’s digital challenges?   

P.M.: I would set the scope much broader than digital challenges because the technology itself is enabling people to build new kinds of marketplaces that once seemed hard even to conceive. We have online job markets. We have house-sharing marketplaces like Airbnb. We have algorithmic matching for patients and kidneys. These didn’t exist 30 years ago and there are new proposals for pricing roads to alleviate congestion in cities, and for sharing access to spectrum to improve data and communications. New markets are being created to share computing capacity for training large AI models, which use enormous amounts of computing and then markets personally. There have just been many new applications in the recent past and it looks like they may arise in the future as well. 

You won the 2020 Nobel Memorial Prize in Economic Sciences, together with Robert B. Wilson, “for improvements to auction theory and inventions of new auction formats”. How did you find out you’d been awarded the Prize and what were your first feelings about it? 

P.M.: You know, it was in the middle of the night and I was asleep with my mobile phone off. When Bob and Mary Wilson came knocking at my door my very first feelings were what’s going on here? Bob knocked at my door and said: ‘Paul wake up. You have won the Nobel Prize but they can’t reach you’. I was half asleep and was thinking this doesn’t make any sense. I have a doorbell camera that caught the event of them knocking at my door and telling me about the price. Millions of people have seen this video. My students and friends have been telling me for 15 years ‘Paul, you should be awake at 2:00 in the morning because one of these years the calls gonna be for you’ but you know, you can’t live for those things.  

How has your life changed since receiving the award? 

P.M.: Well, I get asked to support various causes around the world. I get asked to sign autographs and stand for selfies. This part is not so special.  The best part is that my ideas are taken more seriously. I have some applied ideas about how things should be done differently and when. I can have radical ideas because people listen, they think, well, maybe he knows. I am just the same guy I was before the Prize but people listen to me more. So that is the biggest change.  

What advice do you usually give to younger researchers, how should they handle, for example, if they get stuck in their research or face unexpected problems? 

P.M.: I tell them to have two or three projects going on so that when they’re stuck, they can move on and let things do for a while. I also tell them to have clearly in mind the questions that they want to answer and also, why do they choose those questions? You know, we want stuff that when we’re finished somebody cares about the answer. I think too many students who do economic theory choose hard problems. So, I also tell them that if they think hard about well-posed questions, they’ll almost always find something interesting. It’s just there’s a very high yield rate on that. 

You are very active in the private sector, as well. Can you tell us that all the work you have done in the advising industry how played into your academic work and also how your academic work influences your work in the advising industry? 

P.M.: Well, it’s been an eye-opening experience. I wouldn’t have met people like Corvinus’ researcher Bíró Péter before I started doing this stuff. I talked mostly to economists before. Working on real-world issues shows me that the solutions involve most of the time a broad range of disciplines. So I’ve collaborated with non-economists, especially engineers and computer scientists, and that’s expanded my research perspective and helped me understand important directions. I think the best example for me is the broadcast incentive auction in which the research allocation problem was computationally challenging. I had to learn some computer science complexity theory. Had to learn about the performance of algorithms for hard problems. Had to adapt an auction design to those kinds of realities and legal realities. We couldn’t just do anything we had to do without fitting into the law of the country. These are topics that I never would have studied if I didn’t have a practical challenge in front of me.