Dollar auction

The dollar auction is a non-zero sum sequential game that economist Martin Shubik explored to show how short-sighted rational choices can lead to outcomes that are irrational in the long run. In the game, an auctioneer sells a dollar bill, but the second-highest bidder also pays their bid and loses it. Each short-term bid to limit losses pushes the price upward, so bids can reach and surpass one dollar, and according to the article, only the auctioneer profits in the end. The article also notes that the game is a discrete version of the war of attrition and that Augenblick's 2016 study examined the sunk-cost fallacy in penny auctions.