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The Dollar Auction Game Shubik (1971) Shubik (1971) introduced the so-called Dollar Auction Game: In an auction, bidders can buy one dollar. The rule is that every bidder has to pay the highest offer given during the auction. If Bidder A offers 35 cents and Bidder B 40 cents, then Bidder B gets the dollar and has to pay 40 cents, but Bidder A has to pay 35 cents and gets nothing. Contributor© POSbase 2008
The Dollar Auction Game People begin to bet because it is an opportunity to get 1$ for less than 1$. However, when Bidder A bids 95 cents, this sum is at stake: Bidder A has to pay it if Bidder B offers 1$, without getting something in return. Therefore, Bidder B will be tempted to bid 1.05$ to get the dollar. This will yield a loss of 5 cents, in contrast to losing 95 cents when no offer is given. However, now bidder A is tempted to bid 1.10$ in order to 10 cents when getting the dollar rather than losing 1$. © POSbase 2008
The Dollar Auction Game Usually, the dollar is sold for more than 1$. In some experiments, bids for 1$ were up to 20$ ! This experiment shows a dilemma that may arise in conflicts: People may be so entrenched in a conflict, which has cost them a lot of energy, that they decide to continue to fight although the costs become higher, and ending the conflict more costly. © POSbase 2008
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