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?

(In reply to continuing with my thought.. by Dave)

But if everyone wants to do what is best for them, they'll bid 2 cents and try to make a 98 cents profit rather than just break even. Then the person who bid 1 cent will bid more than 2 cents to try to make a profit rather than lose their 1 cent, and the bidding will just go up.

If the first person bid $1, anyone who bid over that would not be doing what is best for them because they would make a loss rather than break even. So, nobody would bid over $1.

Posted by Lewis on 2003-06-03 21:36:43