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Schelling's Game TheoryHow to Make Decisions$
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Robert V. Dodge

Print publication date: 2012

Print ISBN-13: 9780199857203

Published to Oxford Scholarship Online: May 2012

DOI: 10.1093/acprof:oso/9780199857203.001.0001

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The Dollar Auction

The Dollar Auction

Chapter:
(p.114) Chapter 10 The Dollar Auction
Source:
Schelling's Game Theory
Author(s):

ROBERT V. DODGE

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199857203.003.0010

The Dollar Auction is a game that models escalation. It is related to “sunk cost” that cannot be retrieved, which is the usual trap for escalation. This simple game makes that point memorable. This chapter describes how the game is played, how it normally proceeds, and gives the views of several authorities on what the best strategy is for playing it. Additionally, there are historical examples of escalation. The dollar auction description is that a dollar is literally auctioned with several conditions. One condition is that there is no communication among participants; and the most important is that both the two top bidders pay their bids, while only the top bidder gets the dollar. Martin Shubik, Howard Raiffa, and Schelling offer different views on how the game should be played. Schelling assigned two problems that involved an agent who would be playing the game and what instructions one would write for him. There is a brief discussion of problems that involves outcomes by following advice from Schelling and Raiffa.

Keywords:   escalation, sunk cost, Vietnam, Iraq, Martin Shubik, Howard Raiffa

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