Dollar Auction

AAA

DEFINITION of 'Dollar Auction'

The basic dollar auction is based on the auction of a $1 bill between two individuals. A dollar auction is a non-zero-sum game, which, like the prisoner's dilemma, reveals that rational behavior can often lead to an undesirable consequence. The winner of the auction receives the bill while the other participant must pay the price of his last bid.

INVESTOPEDIA EXPLAINS 'Dollar Auction'

After both participants have put in their initial bids, logically it doe not make sense for them to stop bidding up the price. For example, if participant A bids 90 cents, which is followed by a $1 bid from participant B, participant A can either bid $1.01 and lose 1 cent or drop out of the auction and lose 90 cents. Rationally, the bid should be placed. Participant B is now left in a similar situation where he can bid $1.02 or drop out, resulting in respective losses of 2 cents or $1. The bidding process would theoretically continue to perpetuity as both players stay committed to the losing cause.







RELATED TERMS
  1. Sealed-Bid Auction

    A type of auction process in which all bidders simultaneously ...
  2. Iterated Prisoner's Dilemma

    A normal prisoner's dilemma played repeatedly by the same participants. ...
  3. Tit For Tat

    A game-theory mechanism which is subject to a payoff matrix similar ...
  4. Prisoner's Dilemma

    A paradox in decision analysis in which two individuals acting ...
  5. Reverse Survivorship Bias

    The tendency for low performers to remain in the game, while ...
  6. Game Theory

    A model of optimality taking into consideration not only benefits ...
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some examples of Apple and Google's best-selling product lines?

    There are many good examples of product lines in the technology sector from some of the largest companies in the world, such ... Read Full Answer >>
  5. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  2. Mutual Funds & ETFs

    Is Biased Investing Holding You Back?

    Risk aversion seems to come to us naturally, preventing us from stepping into unfamiliar territory. But feeling comfortable isn't always the best thing for your portfolio.
  3. Forex Fundamentals

    How Petrodollars Affect The U.S. Dollar

    We examine the rise of petrodollars, their influence on the USD as a global reserve currency, and their effects on the U.S. markets.
  4. Economics

    What Does Inferior Good Mean?

    The term “inferior good” does not describe a lack of quality, but rather, is an economic term used when discussing elasticity of demand for a good.
  5. Economics

    What Is a Giffen Good?

    A Giffen good is a product whose demand increases as its price increases, and falls when its price falls.
  6. Economics

    What Does Going Concern Mean?

    Going concern is a concept used in business and accounting to describe the fiscal health of a company.
  7. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.
  8. Economics

    Explaining the Supply Chain

    A supply chain is the cumulative network involved in moving raw materials, components and finished products from original suppliers to end users.
  9. Fundamental Analysis

    How is the Demand Schedule Calculated?

    A demand schedule is a table that lists the quantity demanded of a good at different price points.
  10. Economics

    What is Normal Profit?

    Normal profit is an economic term that means zero economic profit.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!