Dollar Auction

Dictionary Says

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 Says

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.









comments powered by Disqus
Hot Definitions
  1. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  2. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  3. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  4. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  5. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  6. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
Trading Center