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 problem doesn't say that you can't talk to people beforehand, so why not start a pretend bidding war with someone?

You could start bidding at 1 cent and each bid up 1 cent to something small like 10 cents. I'm not sure whether the other people in the crowd would be logical enough to foresee the bidding war, but if they do bid you could just stop bidding and only lose 10 cents, but if you win you and your friend would get a profit of 81 cents between you.

Posted by Lewis on 2003-06-21 00:27:14