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
Chapter. 4755 words.
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