I have a one dollar bill. there is a crowd of people around me. I hold it up and say that i will auction the one dollar bill off, and the dollar would go to the highest bidder.

The catch? the first AND second highest bidder both have to pay me whatever they bid. For example, if the bidding stops when someone bids 1.00 and the next person bids .95, then I get 1.95, and the winner gets nothing, the second person loses 95 cents.

What would you do if you were at this auction, and there had to be at least one bid? What is the "winning" strategy, assuming that everyone will want to do what is best for them?

 

I don't think there is a right answer since it depends on the greed of the participants. If the first person bid 51 cents, then anyone should know that bidding a dollar would get outbid. The 51 cent bid is guarenteed to loose 51 cents, so bid $1.01 to lose only 1 cent. Likewise if the first bid were $0.02, and outbid, the $0.02 would bid $1.01 to lose only 1 cent instead of 2 cents. If the first bid were $0.01, why bid $1.00, you gain nothing. Bidding $0.99 risks that the 1 cent bidder would bid $1 to lose nothing.

First person bid 1 cent. If you don't get the first bid, stay out of the bidding and lose nothing. If another bidder gets involved, they risk losing for little gain.

First person could offer to split winnings so everyone wins (depends on number of people present) and only the instigator loses (serves him right!)

Posted by Rajal on 2004-08-10 15:51:14