Scenario: A common game played in many MBA-level classes on microeconomic theory and strategy is the dollar auction game. In this game, the professor takes on the role of auctioneer, offering to auction off a dollar bill to the highest bidder. This is an open-outcry auction, so students just shout out their bids. The one catch to the game is that the winning bidder pays her bid (the highest bid received), but the second-highest bidder must also pay the auctioneer the amount of her highest bid.
-Refer to the scenario above.In the dollar auction,what is your equilibrium bidding strategy?
A) Bid $0.50
B) Bid $0.99
C) Bid $1.00
D) Don't bid at all

Question

Quizplus · Accepted Answer

The dollar auction is a classic example of a situation where rational behavior can lead to an undesirable outcome. In this game, the only way to win is to bid higher than everyone else, but the catch is that both the winning bidder and the second-highest bidder have to pay their respective bids. This means that if two players get caught up in a bidding war, they may end up paying much more than the value of the dollar bill. In fact, in theory, the bidding could go on indefinitely, with each player continuing to raise their bid in an attempt to avoid losing money. Therefore, the best strategy is to not bid at all and avoid getting caught up in the auction.

Scenario: a Common Game Played in Many MBA-Level Classes on Microeconomic