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 situation as posed in the problem is kind of funny, as the 95¢ bid came after the winning dollar bid, but I am assuming that was an oversight.

I would probably, in a logical sense, bid a penny, or try to bid a dollar right off.

Of course, it's still just a dollar, so there is room to have some fun; for instance, I might bid $1.01 after someone bid a dollar just to see what they would do. Or, I would start off with a five-dollar bid and try to convice everyone else that there is something special about the dollar bill, just to see if I can get two other people to pay, say, six and seven dollars in trying to get it.

Posted by DJ on 2003-06-04 12:44:25