Dollar Auction Definition
Dollar Auction is a game designed by economist Martin Shubik. The game is based on the auction of a $1 bill between two individuals. If the first participant bids 90 cents for the bill, and the second participant bids $1, the first participant either has to pay 90 cents or raises the bid to $1.01. This way the player either loses 90 cents or gets a $1 bill for $1.01, losing 1 cent. If the first participant thinks that losing 1 cent is better than losing 90 cents, which is theoretically the rational choice, he or she carries on bidding. Now the second participant is in the same situation: loses either $1 by closing the auction or 2 cents by bidding $1.02. The bidding process would go on for ever, if players would stay committed to the losing cause.