Markets require a few basic components to function properly and fairly, whether that market is for thousands of acres of Canadian spruce or billions of dollars worth of online search advertising.

Design matters, for example, and so do rules and competition. Susan Athey grasped those principles early in her career, when, as a summer research assistant, she analyzed government timber auctions.

“I was learning an industry, learning its institutions, talking to participants, asking a lot of questions,” Athey, recently named the 14th winner of the CME Group-MSRI Prize in Innovative Quantitative Applications, said of her work in timber auctions. “I realized there were really interesting incentive issues, beyond just holding an auction. It was much more than, ‘going, going, gone.’ There were questions about what structure the auction should take, manipulation, collusion, and what motivated firms to show up at the auction. There were all these microcosms below the surface.”

Athey followed that interest over several decades, writing a number of research papers that connected economic theory to data.  Based on this work, she was tapped by the government in British Columbia to design an auction-based pricing system that has been used to price most of the timber harvested in the province since the early 2000s.

Timber auctions piqued Athey’s interest in other types of markets, including “technology-enabled marketplaces,” like those for the ads that pop up on your computer screen when using a search engine.

Athey applied lessons from auctions and other work in a career that’s bridged economics and technology. She’s now the Economics of Technology Professor at the Stanford Graduate School of Business. Athey is also the first woman to win the CME Group-MSRI award and she joins a distinguished group that includes some of the world’s top economists (seven of the 13 previous recipients went on to receive the Nobel Prize in Economic Sciences)

Considered one of the first “tech economists,” Athey focuses on the design of auction-based marketplaces and the economics of digitization, including online advertising and the economics of the news media. She’s also worked on more abstract problems in economic theory, including models of dynamic mechanisms and games with “incomplete information.”   Most recently, she has been working on developing statistical methods that combine machine learning algorithms originally designed for prediction problems with approaches economists use to draw inferences about cause and effect from non-experimental data.  

The CME Group-MSRI award, given in partnership with Berkeley, California-based Mathematical Sciences Research Institute, recognizes individuals “who contribute original concepts in mathematical, statistical or computational methods for the study of markets' behavior and global economics.”

Athey will be honored at a virtual event hosted by CME Group on December 11.

“We are pleased to honor Professor Susan Athey,” Leo Melamed, Chairman Emeritus of CME Group and founder of the CME Group-MSRI Prize, said in a statement. “Her groundbreaking work in market design as it relates to business and economics has significant applications to our industry.”

As a research assistant working in the timber industry in the late 1980s, Athey quickly realized there was a lot going on beneath the surface - including troves of data to be parsed and analyzed. She also realized that functioning markets are based on information and relationships between buyers and sellers. In the case of lumber, the seller was usually the Canadian government, which owned the forest land. Buyers included a variety of parties: paper producers, sawmills, small, private loggers, individual speculators.

“Her work on timber auctions was path-breaking,” says Paul Milgrom, Athey’s former instructor at Stanford, CME Group-MSRI prize winner and the 2020 winner of the Nobel Prize in Economic Sciences for his work on designing auctions. “It went straight to the main issues of how auction design affected both bidding strategies and bidder decisions to participate, and the latter helped determine the industry structure.”

There is a “well-defined set of rules” at timber auctions, Athey said. “Thus, it’s something we can wrap our heads around theoretically, and we can also create a very close mapping between the theoretical models and the data. I was able to understand how those markets could be designed theoretically, and also to match those designs up with data.”

Athey’s timber auction research led her to help design another type of buyer-seller forum that was then in its embryonic stages but would soon take off: online search advertising.

Online search auctions feature a wide range of competitors, from giants like Amazon and eBay down to local, mom-and-pop merchants. Similar to timber auctions, “asymmetries” arise, in terms of factors like information and engagement, Athey said, so it’s critical ad auctions are designed so the small players get a fair shake.

“We need to make sure we design markets in such a way that those small bidders participate,” Athey said, “Because those small bidders, collectively, are what keep the big bidders honest and competitive.”

Her work in online advertising and search engines, Athey added, brought home the expanding role big tech would assume in everyday life and business.

“There are a lot of complexities introduced by technology including competition, privacy, security and governance,” Athey said. Tech firms are “canaries in the coal mine” for what happens in the rest of the economy, she added. “By having a front-row seat to challenges in the technology industry, I was able to observe and appreciate the importance of these issues and anticipate how important they would be for the economy and society. It’s an environment where an economist can really make a big impact.”

Athey, who was consulting chief economist for Microsoft Corp. for six years, believes technology, combined with market principles, can be a broader force to help solve social problems, such as those arising from the Covid-19 pandemic.

We’ve made “huge advances in a very short period of time” with digitally-delivered schooling at home, training and other services, Athey said. Still, there are “huge impediments” on the buyer or recipient side of those services, and a deeper “chicken-or-egg” dilemma, because the labor market has been unable to properly value non-traditional credentials, she said.

“The advances in digital delivery of services create great opportunities. But we also have gaps,” she said. “There’s a lot of research and trial and error and iterative innovation required to achieve the potential for technology to address societal challenges. We’ve got a long way to go, and many parts of economics are important in solving these problems, but I think when we figure it out, it will be transformational.”