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The “dollar auction” theory can help explain the Kavanaugh chaos

A game theory experiment for how both parties are thinking of the Supreme Court nominee.

Protestors Rally Against Brett Kavanaugh Nomination Outside Yale Club In NYC Spencer Platt/Getty Images

If you want to understand some of the logic of American politics right now, consider a simple but classic game theory experiment that you can try at home.

It’s called the dollar auction, and it works like this: One person holds out a dollar bill and tells two friends, let’s call them Deborah and Roger, that she will auction off the dollar to the highest bidder, but with one big catch and one important limitation. Both the winning bidder and the second-highest bidder have to pay the price of their bid. And there is no communication between players allowed other than the bids.

Deborah gamely offers a penny to start. Roger, seeing an opportunity, jumps in at two cents.

What should Deborah do now? If she stands aside, she has lost a penny. If she bids up to three cents, she can still get a dollar for a bargain. But then Roger is in the same position. So he bids four cents. And so the escalation goes. They’re both in. And the only way is up.

What happens when Deborah is up to 99 cents, and Roger is at $1.00? If Deborah walks away, she has lost 99 cents. If she bids $1.01, she loses only a penny. But when she bids $1.01. Roger is in the same situation. He bids $1.02. Now both are losers. They’ve overpaid for a dollar. Attracted by what looked at first like an easy bargain, neither player looked down the decision tree to the end.

If you try this at home, you’ll see that there is a moment when both players realize what they’ve gotten themselves into, and how hard it is to get themselves out of it. The consistent result is that participants overpay considerably for the dollar they thought they were initially getting for a bargain.

This is the problem of the game. You don’t realize the escalation trap until you’re stuck in it, because you don’t think enough about how the other side will respond. And once you’re in, your in. (Martin Shubik, who first described this game in a three-page 1971 paper, notes that “experience has indicated that the best time is during a party when spirits are high and the propensity to calculate does not settle in until at least two bids have been made”)

It’s hard not to see Democrats and Republicans as trapped in a dollar auction-esque escalation game over the Supreme Court, though the prize is far greater than a single dollar. At this point, both sides have put in way more than a dollar. They’ve now riled up their bases so much that they will pay a big price in backlash and disappointment if they lose. But the escalation continues. And both sides are sure they are in the right. At a certain point, the value of the dollar is beside the point. It’s just a matter of winning, whatever the damage.

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