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?

As the first bid nobody would bother risking 1 dollar for a 1 dollar return therefore 99 cents is the best first and only bid. If you can't bid this first then don't bother.

If 99 cents was made as the only bid, there would be no previous chain of 'one upmanship' to contend with therefore nobody else would bother bidding at all. So you would make 1 cent per lot.

Posted by Matt on 2003-06-04 06:03:37