The Parable of the Dollar Auction

September 19, 2008 § 7 Comments

A guy walks into a bar.

He slaps a $100 bill on the table and says “I’m auctioning off this $100 bill. Bidding starts at a dollar. The only rule is that the next highest losing bidder has to pay me too.”

Bill and Ted can’t help themselves. Bill would love to have some extra money to donate to Catholic Answers, and Ted is planning on using the proceeds to renew his subscription to Commonweal. A hundred smackers with bidding starting at a buck? What’s not to like about that?

So Bill bids a dollar. Ted tops him by bidding $2. (Heck, who wouldn’t put $2 on the line for a hundred?)

When the bidding gets up to $99, something interesting happens. Bill realizes that he is out $98 if he doesn’t bid $100, but if he bids $100 he can still break even. Being Catholic, he consults the USCCB document on game theory. It says something to the effect that if he has a proportionate reason it is fine to make a decision to limit his losses. It doesn’t mention Martin Shubik.

So he bids $100. Then Ted realizes that if he bids $101, he will only be out a buck instead of $99.

And so it goes. At some point the knife fight starts.

(Cross-posted
)

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