How Do You Auction Off $1 For $3.75?

Economist Dr. David Zetland teaches a short lesson about all-pay auctions, a type of auctioneering that requires all bidders to pay their bids regardless if they win or lose.

The mentality is if you already made a bid, that’s sunk cost, and it’s a much better outcome to keep bidding to win rather than lose your last committed bid. The lesson here is to not participate at all.

This type of auctioning can be applied to the world of politics. A Politician solicits and gets contributions from various lobbying interests. The lobbyists will keep trying to out-contribute each other to influence the politician. Once engaged, they won’t stop until they get what they want. The only clear beneficiary is the politician.


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