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International Escalation and the Dollar Auction

Author

Listed:
  • Barry O'neill

    (Department of Industrial Engineering and Management Science, Northwestern University)

Abstract

Two players bid for a dollar on the condition that both the loser and the winner must pay the bids, although only the winner will receive the dollar. Collusion or threats are excluded; bids must be in units of nickels; and a player does not bid in a situation in which bidding and not bidding would lead to the same payoff. We derive a formula for the players' rational strategies, which implies, for example, that when both have $2.50 available, the first bidder should open by bidding $.60 and the other should remain silent. The fact that rational players would not bid against each other shows that unlike the Prisoners' Dilemma, the dollar auction is not innately a trap, but exploits some irrationality in the bidders' behavior. The dollar auction resembles international escalation in that the governments in conflict commit resources that will not be returned. Some points of difference in the two situations are listed and discussed.

Suggested Citation

  • Barry O'neill, 1986. "International Escalation and the Dollar Auction," Journal of Conflict Resolution, Peace Science Society (International), vol. 30(1), pages 33-50, March.
    • Handle: RePEc:sae:jocore:v:30:y:1986:i:1:p:33-50
    DOI: 10.1177/0022002786030001003
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    Cited by:

    1. Pierre Lescanne, 2013. "A simple case of rationality of escalation," Post-Print ensl-00832490, HAL.
    2. Zhang, Junfu, 2011. "Interjurisdictional competition for FDI: The case of China's "development zone fever"," Regional Science and Urban Economics, Elsevier, vol. 41(2), pages 145-159, March.
    3. Alcalde, José & Dahm, Matthias, 2008. "The Complete Information First. Price Auction or the Importance of Being Indivisible," Working Papers 2072/13264, Universitat Rovira i Virgili, Department of Economics.
    4. Migheli, Matteo, 2012. "It is not just escalation: The one dollar game revisited," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 434-438.
    5. José Alcalde & Matthias Dahm, 2011. "On The Complete Information First-Price Auction And Its Intuitive Solution," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 353-361.
    6. Tranaes, Torben, 1998. "Tie-Breaking in Games of Perfect Information," Games and Economic Behavior, Elsevier, vol. 22(1), pages 148-161, January.

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