The dollar auction is a sequential bidding game explored by the economist Martin Shubik to show how short-sighted rational choice can lead to decisions that are irrational in the long run. An auctioneer offers a dollar bill to the highest bidder, but with a twist: the second-highest bidder must also pay what they bid and receives nothing, so they become the biggest loser. A bid of five cents for a dollar looks like a bargain, yet each rival who raises it makes the runner-up want to bid again to turn a certain loss into a gain. Bids climb past the value of the dollar as players try to cut their losses, and in the end only the auctioneer profits. Analysts treat it as a discrete form of the war of attrition and as an illustration of escalation of commitment, and Shubik published it in 1971.
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1. Dollar auction (Wikipedia)
Lead sentence
is a non-zero sum sequential game explored by economist Martin Shubik
References, Shubik 1971
Shubik, Martin (1971). "The Dollar Auction Game: A Paradox in Noncooperative Behavior and Escalation"
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