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 stephy)

Further to Lewis's comment (which I agree with), if the the first bidder can count on no further bids forthcoming on account of everyone knowing that a second bid will start a bidding war, then the first bidder is better off bidding $0.01 rather than $0.50.

By the way, even assuming that no one else bids, how does the first bid of $0.50 'make' a $1.00?

Posted by Sanjay on 2003-06-17 11:09:59