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?

A good strategy must cover all scenarios. Hence, I think the full strategy should read as follows:

If someone has already made an opening bid, and the bid is anything less than a dollar, then you should stay out of the bidding and watch me get very very rich. Enjoy the entertainment. Its free. At least for you.

If someone has already made an opening bid, and the bid is exactly a dollar, then it will be a very short auction. No one will make any money, including me, and everyone will wonder what the fuss was about.

If, by the time you gather your wits, no one has yet made an opening bid and there is an uncomfortable silence around you, you should bid a dollar and put everyone out of their misery, because otherwise no one will get to go home since there just has to be at least one bid. (Hey, I didn't make the rules). Someone has to do the dirty job. So why not you?

Think about it. It makes cents.

Posted by Sanjay on 2003-06-09 15:33:57