Value proposition

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In his 1971 paper, Shubik describes the dollar auction as an “extremely simple, highly amusing and instructive parlor game.” A dollar bill is auctioned with these two rules:

1. (As in any auction) the dollar bill goes to the highest bidder, who pays whatever the high bid was. Each new bid has to be higher than the current high bid, and the game ends when there is no new bid within a specified time limit.

2. (Unlike at Sotheby’s!) the second-highest bidder also has to pay the amount of his last bid – and gets nothing in return. You really don’t want to be the second-highest bidder.

Shubik wrote, “A large crowd is desirable. Furthermore, experience has indicated that the best time is during a party when spirits are high and the propensity to calculate does not settle in until at least two bids have been made.”

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