(A hat-tip to C. Gee for spotting this!)
For those of you who enjoyed Nudge, here is Professor Thaler in the New York Times discussing an interesting behavioural analysis of the website Swoopo.com. (If you haven’t visited the site yet, it’s very interesting to watch!).
He uses a dollar auction game invented by a Martin Shubik of Yale, illustrating the concept of “escalation of commitment” and looks at its applications to a last-minute penny auction.
The twist from Shubik on the usual bidding game, where a rational agent should not pay more than £19.99 for £20, to a situation where players are willing to pay much more than £20 for £20 raises some interesting discussion points. It takes the Winner’s Curse a lot further than usual! I look forward to playing this game with some of my A2 students to see how high the most stubborn of my students will be willing to bid for a £20-note…so as not to lose the actual game.
Here’s some more reading on game theory and auctions.
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