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This is like the old trick of auctioning off a $20 note with the twist that the two highest bidders must both pay even if they end up losing. I saw this play ou

This is like the old trick of auctioning off a $20 note with the twist that the two highest bidders must both pay even if they end up losing. I saw this play out in a Negotiation 101 tutorial once, for real money, and the bid got up to $40 or so before one person finally bailed (i.e. around $80 spent on a $20 note). It's a game of chicken. The earlier bids are a sunk cost. You hope you can spend an extra $1 to win the $20. Sounds insane to even start bidding, right? But then you see things like this play out all the time in the market. For example, the war between Blu-Ray and HD-DVD had a very similar dynamic. EDIT: See https://en.wikipedia.org/wiki/Dollar_auction https://en.wikipedia.org/wiki/Dollar_auction

rictic 10y ago
Yep. Very similar patterns show up in the decision making and politics that drive the deadliest wars as well. Apparently it is very easy for both sides to convince themselves that they are made of tougher stuff than their enemies and that if they can just bear down and take the losses they'll come out on top. 1] https://en.wikipedia.org/wiki/Attrition_warfare https://en.wikipedia.org/wiki/Attrition_warfare 2] https://en.wikipedia.org/wiki/War_of_attrition_(game) https://en.wikipedia.org/wiki/War_of_attrition_(game)
- tlow 10y ago
  "very easy for both sides to convince themselves that they are made of tougher stuff than their enemies" I'd be delighted if you could provide some sort of source or citation for this claim as I find it fascinating. Thanks.
  - Apofis 10y ago
    Japan for example in WW2.
    - tlow 10y ago
      Citation?
  - rictic 10y ago
    My source is Steven Pinker's Better Angels of our Nature. A few of the sources he highlights on the subject: 1] War of Attrition game: Maynard Smith, 1982, 1988; see also Dawkins, 1976/1989. 2] Loss aversion: Kahneman & Renshon, 2007; Kahneman & Tversky, 1979, 1984; Tversky & Kahneman, 1981. Sunk costs in nature: Dawkins & Brockmann, 1980. 3] More lethal wars last longer: Richardson, 1960, p. 130; Wilkinson, 1980, pp. 20–30. 4] Weber’s Law for perceived deaths: Richardson, 1960, p. 11. And a couple of relevant quotes: > In these simulations, the destructiveness of a war depends mainly on the territorial size of the combatants and their alliances. But in the real world, variations in destructiveness also depend on the resolve of the two parties to keep a war going, with each hoping that the other will collapse first. Some of the bloodiest conflicts in modern history, such as the American Civil War, World War I, the Vietnam War, and the Iran-Iraq War, were wars of attrition, where both sides kept shoveling men and matériel into the maw of the war machine hoping that the other side would exhaust itself first. ... > I already mentioned some evidence from Richardson’s dataset which suggests that combatants do fight longer when a war is more lethal: small wars show a higher probability of coming to an end with each succeeding year than do large wars. The magnitude numbers in the Correlates of War Dataset also show signs of escalating commitment: wars that are longer in duration are not just costlier in fatalities; they are costlier than one would expect from their durations alone. If we pop back from the statistics of war to the conduct of actual wars, we can see the mechanism at work. Many of the bloodiest wars in history owe their destructiveness to leaders on one or both sides pursuing a blatantly irrational loss-aversion strategy. Hitler fought the last months of World War II with a maniacal fury well past the point when defeat was all but certain, as did Japan. Lyndon Johnson’s repeated escalations of the Vietnam War inspired a protest song that has served as a summary of people’s understanding of that destructive war: “We were waist-deep in the Big Muddy; The big fool said to push on.”
    - tlow 10y ago
      From your own citation: "with each hoping that the other will collapse first" This in no way demonstrates a belief that both sides thing they are made of tougher stuff. In fact, it says explicitly that both sides are "hoping" that the other side "collapses first". This is in no way indicative of any self value of positive strength and thus a premise of your argument is false. Therefore you conclusion is false. If you would like to submit another attempt at providing reasonable evidence to back up your claims, I'm more than happy to review them.
Chris2048 10y ago
What stops you just pulling out of such an auction? You need far more guarantees from bidders than usual...
- SamBam 10y ago
  > the two highest bidders must both pay It's simply in the rules that you must pay if you're high bidder #2, even if you pull out. Basically, it will immediately devolve into the two highest bidders each bidding over each other, in an attempt to not be the one who has to pay money and get nothing at all in return. At some point, one will have to take the fall and accept that they've lost money with nothing to show, and the other will also have lost money, just slightly less. Both people lose. Everyone else sits there happy that they avoided being one of the two highest bidders. In the penny auctions, however, you can have multiple people who have spend hundreds or thousands of dollars on this stupid auction, who all hope that at least if they win, they'll get something in return for their losses.
Thespian2 10y ago
Unless you try it with a group familiar with game theory, when one person says "You and I bid one and two cents, and everyone else shut up and don't bid, and we all split the $19.97 profit evenly."
- tedunangst 10y ago
  There's always a defector who realizes he can bid three cents and take the whole 19.97 for himself.

rictic 10y ago

Yep. Very similar patterns show up in the decision making and politics that drive the deadliest wars as well. Apparently it is very easy for both sides to convince themselves that they are made of tougher stuff than their enemies and that if they can just bear down and take the losses they'll come out on top. 1] https://en.wikipedia.org/wiki/Attrition_warfare https://en.wikipedia.org/wiki/Attrition_warfare 2] https://en.wikipedia.org/wiki/War_of_attrition_(game) https://en.wikipedia.org/wiki/War_of_attrition_(game)

tlow 10y ago
"very easy for both sides to convince themselves that they are made of tougher stuff than their enemies" I'd be delighted if you could provide some sort of source or citation for this claim as I find it fascinating. Thanks.
- Apofis 10y ago
  Japan for example in WW2.
  - tlow 10y ago
    Citation?
- rictic 10y ago
  My source is Steven Pinker's Better Angels of our Nature. A few of the sources he highlights on the subject: 1] War of Attrition game: Maynard Smith, 1982, 1988; see also Dawkins, 1976/1989. 2] Loss aversion: Kahneman & Renshon, 2007; Kahneman & Tversky, 1979, 1984; Tversky & Kahneman, 1981. Sunk costs in nature: Dawkins & Brockmann, 1980. 3] More lethal wars last longer: Richardson, 1960, p. 130; Wilkinson, 1980, pp. 20–30. 4] Weber’s Law for perceived deaths: Richardson, 1960, p. 11. And a couple of relevant quotes: > In these simulations, the destructiveness of a war depends mainly on the territorial size of the combatants and their alliances. But in the real world, variations in destructiveness also depend on the resolve of the two parties to keep a war going, with each hoping that the other will collapse first. Some of the bloodiest conflicts in modern history, such as the American Civil War, World War I, the Vietnam War, and the Iran-Iraq War, were wars of attrition, where both sides kept shoveling men and matériel into the maw of the war machine hoping that the other side would exhaust itself first. ... > I already mentioned some evidence from Richardson’s dataset which suggests that combatants do fight longer when a war is more lethal: small wars show a higher probability of coming to an end with each succeeding year than do large wars. The magnitude numbers in the Correlates of War Dataset also show signs of escalating commitment: wars that are longer in duration are not just costlier in fatalities; they are costlier than one would expect from their durations alone. If we pop back from the statistics of war to the conduct of actual wars, we can see the mechanism at work. Many of the bloodiest wars in history owe their destructiveness to leaders on one or both sides pursuing a blatantly irrational loss-aversion strategy. Hitler fought the last months of World War II with a maniacal fury well past the point when defeat was all but certain, as did Japan. Lyndon Johnson’s repeated escalations of the Vietnam War inspired a protest song that has served as a summary of people’s understanding of that destructive war: “We were waist-deep in the Big Muddy; The big fool said to push on.”
  - tlow 10y ago
    From your own citation: "with each hoping that the other will collapse first" This in no way demonstrates a belief that both sides thing they are made of tougher stuff. In fact, it says explicitly that both sides are "hoping" that the other side "collapses first". This is in no way indicative of any self value of positive strength and thus a premise of your argument is false. Therefore you conclusion is false. If you would like to submit another attempt at providing reasonable evidence to back up your claims, I'm more than happy to review them.

Chris2048 10y ago

What stops you just pulling out of such an auction? You need far more guarantees from bidders than usual...

SamBam 10y ago
> the two highest bidders must both pay It's simply in the rules that you must pay if you're high bidder #2, even if you pull out. Basically, it will immediately devolve into the two highest bidders each bidding over each other, in an attempt to not be the one who has to pay money and get nothing at all in return. At some point, one will have to take the fall and accept that they've lost money with nothing to show, and the other will also have lost money, just slightly less. Both people lose. Everyone else sits there happy that they avoided being one of the two highest bidders. In the penny auctions, however, you can have multiple people who have spend hundreds or thousands of dollars on this stupid auction, who all hope that at least if they win, they'll get something in return for their losses.

Thespian2 10y ago

Unless you try it with a group familiar with game theory, when one person says "You and I bid one and two cents, and everyone else shut up and don't bid, and we all split the $19.97 profit evenly."

tedunangst 10y ago
There's always a defector who realizes he can bid three cents and take the whole 19.97 for himself.