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?

The whole point of an auction is that each bidder acts in self-interest, often to the detriment of other bidders, and sometimes even to the detriment of the group of bidders as a whole.

Therefore, I do not understand how a 'there must be at least one bid' can be enforced if each bidder is allowed to bid or to not bid at any stage of the auction, including at the start. The only leverage that the person offering the dollar has is to withhold the dollar if no one bids.

Many of the provided solutions are in the area of collective thinking and collective bidding strategies. But collective strategy flies in the face of 'everyone wanting to do what is best for them'.

If collective strategies are allowed then the 1 cent solution works for me. How about an opening bid of 0 cent and everyone agreeing to keep quiet?

Posted by Sanjay on 2003-06-03 22:47:11