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?

Assuming that what is meant by 'everyone will want to do what is best for them' is that every individual will seek to maximize their individual cash flow, and assuming that everyone posseses the skill to 'think forward and reason back', the auction will never start because everyone's winning strategy is to stay out of the auction and break even.

Posted by Sanjay on 2003-06-03 06:08:13