Let's Make a Deal

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Here's a little eye opener to try out next time you've got a crowd. Auction off a $20 bill, the opening bid, a dollar, with bids climbing in one-dollar increments. It's winner takes all, but there's a catch. Both the winner and first runner-up have to pay.

This won't end well if it ends at all. Everyone will drop out but two bidders who continue outbidding each other, neither willing to surrender and become the runner-up who gets nothing but still pays. They'll overpay for that $20 which seems irrational but isn't entirely. After all, you would bid that first dollar, right? And once you're in, you think, "bid still another to win rather than get nothing? Sure. That's worth it."

This winner-takes-all-loser-still-pays auction opens eyes to something fundamental about evolution, competition and especially modern life. Today millions invest in careers where few succeed, many in debt for educations in fields they couldn't enter. Many are called; few are chosen, but all the called still have to pay.

Think of the billions spent by also-rans this election season. In fact we all pay, as candidates do ever-uglier things in their desperate scramble not to be the ones who paid but lost. In evolution, think of the competition to be alpha male and all those beta males who have no offspring to show for their investment.

The auction explains war, too. We think megalomania makes leaders unwilling to surrender, but really the auction drives the carnage. Leaders say, "Bid another soldier so that past soldiers will not have died in vain? That's worth it" until both sides are bled white.


We love and hate the auction. It's our best engine for progress and innovation in science and culture. But the auction misallocates resources something fierce. Government's most underappreciated role is reining in the auction in the many arenas where the auction does more harm than good.

With a Perspective, I'm Jeremy Sherman.

Jeremy Sherman is a professor of rhetoric at the University of San Francisco.