Let’s play a game. We’ll take turns bidding for a dollar bill. Both of us will have to pay our final bids, and the winner gets to keep the dollar.The key is that all bidders have to pay the amount of their final bid. I'm definitely going to try to pull this when my cousins come to visit, and may consider it as a fundraising method at a hobby club I'm a member of...
Not surprisingly, the bidding will soon reach 99 cents. But then I’ll bid $1.00, giving up any hope of profit but getting at least the dollar for my trouble. And then you’ll bid $1.01, with the same idea. And so on indefinitely: First we were bidding for gain, but now we’re trying to minimize our losses.
It sounds absurd, but in principle two sane people could go bankrupt playing this game. Yale economist Martin Shubik invented it to show how an irrational decision can be reached by perfectly rational steps.
23 January 2012
How to win money from your rational friends
I found this logic trick at the Futility Closet: