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 by Matt)

It is naive to think no one will bid $1 after a 99¢ bid just because they won't make any money at it. The world is full of people who feel deep down that they are better off if you are worse off, and they will bid $1 for no other reason than to hurt you, even if you are a complete stranger! We should use logic to solve this puzzle, which is not the same as assuming everyone at the auction acts logically.

Posted by Bryan on 2003-06-04 10:35:12