I don't know if anyone here gets "Games" magazine. I have for, well way too many years to go into now. In the last issue they discussed a classic game theory experiment that is fun to do and could be quite possible.
The next time you are at a bar or with a group of supposed friends, announce this wager. "I will auction off this beautiful 1 Dollar bill. Bid as little as you like, the dollar goes to the highest bidder. However, who ever bids the second highest, must pay me the amount of their last bid. So if John bids 25 cents and Jane bids 24 cents, John gets the dollar when he pays me the 25 cents, but Jane still has to pay me 24 cents. Who wants to start."
Psycology and game theory predicts that the bidding may start at 1 penny, but will slowly rise. Once it gets to 99cents, two people will keep bidding higher, realizing the cost of losing is more expensive than just the cost of not-winning.
You should clear a couple bucks with each auction.
posted
My friends wouldn't go for it. One person would bid a penny and the others would let him take it. I'd be out 99 cents.
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posted
Hmm. If your friends are moderately bright, they'll form a buying cartel; one of them will bid one penny, the others will shut up, and they'll share the dollar.
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posted
It's a standard example used in neogtiation classes. The idea is supposed to hammer home the importance of best alternative to a deal and understanding the importance of wanting win when dealing with other parties.
My professor said the record was for about 12 dollars.
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posted
So if you are one of the 2 people locked in bidding once the price reaches 99 cents, the logic is the winner loses 1 doller less than the loser?
So: Winner bids $12, gets $1, so he only lost $11. Loser bids $11.99, loses $11.99...
posted
The smart person bids $.99 straight off, and hopes nobody's ticked at him (or at least, everybody's noted the vicious cycle).
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posted
I did this in my experimental economics class. It actually worked - but the key is you need at least two competitive people involved. Otherwise they might all figure it out and decide to work together. According to our professor, it also helps if the bidders are a bit drunk at the time.
It's actually more effective when you aren't dealing with money, because then then it's harder for the parties involved to figure out the folly of their bidding. It occurs in any situation where all parties pay their highest "bid", and where "bids" can be sequentially increased. An election is one example, since both parties must pay whatever they spend on the campaign, but only the winner gets the benefits. Sports is another example, where the "bid" you pay is the training it takes to win. When several kids compete for a spot on the high school team, they can all end up working harder than that spot is worth to any of them, because to stop would be to waste all the effort. But the best example, I think, is war. In wars, the winner and the loser both pay whatever they spend to fight the war. So, if both sides continue to escalate (increase their "bid" in terms of how many lives and dollars they sacrifice), both sides will often end up spending more than victory was ever initially worth to either ot them. This is one particular reason why war can be very foolish.
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posted
Or love. "it is better to have loved and lost than to have never loved at all." *In a corny french accent*
In other words, make the bid on a date with a girl. This may explain why girls like having lots spent on them. It makes more guys like them, because after they've vested an interest their less likely to back out.
Note: Anyone hear who actually IS french, please don't be offended. It was aimed purely at fakers.
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posted
In the case of war, the cycle becomes particularly vicious, because the winner will try to make the loser pay the costs. (Indeed, the Great War went on so long partly because both sides thought they could make the other pay a huge war indemnity. Might even have worked if the Germans had won - the Kaiser wouldn't have let up on the French the way the Allies did.) In the auction analogy, this is the equivalent of the loser having to pay some sum to the winner on top of what he pays to the auctioneer, although almost certainly not enough to let the winner make a profit. Extra nasty!
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