Michael Webster’s Resolution to the Shubik Dollar Auction Game

We’ve had a lively discussion going about making agressive first offers, for which we are indebted to our regular readers Michael (da Game Man) Webster and mediators Chris Annunziata and Geoff (Coalface???) Sharp.

Michael provided a link to his solution to the “Shubik” Dollar Auction Game that most of us have played in mediation seminars.  Because the game itself demonstrates just how irrational bargaining can be, and Michael’s solution demonstrates how everyone can “win” when cooler heads prevail, I am quoting part of his post here and commending to my readers’ attention the full post here.

Shubik reported [of the Dollar Auction Game described in Michael’s post]:

“Experience with the game has shown that it is possible to ‘sell’ a dollar bill for considerably more than a dollar. A total of payments between three and five dollars is not uncommon.” Possibly W. C. Fields said it best: “If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it.”

Without at all diminishing my respect for W.C. Fields, I venture to suggest that there is a more reasonable way to play this game as opposed to quiting. What is it?

First, lets update the game to the 21st century and restrict it to two players. Replace the $1 with $20 and each bid must be a multiple of $1. Each person must bid at least once, or they can agree not to play at all. What should they do? Suppose first bidder bids $1, and second bidder pays $2, what is the first bidder’s reasonable response? Right now, as a collective they are paying $3 to get $20, or netting $17. He should demand that the second bidder pay his $9.50 not to bid! Alternatively, second bidder can offer first bidder $9.50 not to bid again.

Then the second bidder will the $20, paying $2 to the auctioneer, $9.50 to first bidder and so he nets $8.50. First bidder gets $9.50, pays $1 to auctioneer and nets $8.50, jointly getting $17.00. As I see it, $8.50 is better than nothing, giving lie to the claim that you cannot get something for nothing.

This is why I usually defer to Michael’s greater wisdom.  He can do the math.

                        author

Victoria Pynchon

Attorney-mediator Victoria Pynchon is a panelist with ADR Services, Inc. Ms. Pynchon was awarded her LL.M Degree in Dispute Resolution from the Straus Institute in May of 2006, after 25 years of complex commercial litigation practice, with sub-specialties in intellectual property, securities fraud, antitrust, insurance coverage, consumer class actions and all… MORE >

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