Bidding $100 to Win $20

Game theory. Ever heard of it? I know it sounds sitting around thinking of the best way to set up a Monopoly board, but it’s actually used by the CIA to predict the actions of foreign dictators and by businesses to create pricing schemes. Writers, too, should know a little something about it, although the good writers already work with the principles even if they don’t know it.

Game theory is the science of strategic decision-making. Put differently, it’s about calculating human motivation.

Here’s an example of game theory in action. There was once a professor of game theory who sold a 20 dollar bill for more than two hundred dollars in an auction. How’d he do it? Simple: the winner pays the bid and then gets the prize, just like in a normal auction. The only difference was that the second-place bidder also had to pay whatever they bid, and they walk away with nothing. That means the top two bidders will go higher and higher, because it’s cheaper to lose in first place than to lose in second.

I decided to see if the experiment would actually work, so I decided to try it on my students. It seemed unethical to bilk a bunch of trusting teens out of hard currency, so instead of auctioning off an Andrew Jackson, I put up 10 Style Points instead. Style Points are funny class tokens with which I reward anyone who can make an out-of-class connection to in-class material, like, for example, finding an allusion to Macbeth while we’re reading the Scottish Play. Style Points aren’t worth anything—not even extra credit—but they can be exchanged for bathroom passes and a few other amenities, and occasionally I buy them back with leftover Halloween candy.

I explained the rules about the highest bidder getting the prize and the second-place bidder also having to pay, and then I opened the auction and I had a bid right away. Who wouldn’t bid one goodie to get 10 more just like it? And the next person bid two because that would still net him eight. It was all good fun and there were lots of smiles… until the bidding hit nine and 10. Then the second place person realized if he lost, he would be out nine, but if he bid 11 he would only end up with a net loss of one. The problem was that the other guy realized the same thing, and then the smiles turned into grimaces and the room sank into tense silence as the bids climbed higher and higher. I did this in two classes: in one I got 19 Style Points in exchange for my 10, and in the other class I got 29. It works.

Two lessons here. 1) These kids have a REALLY mean teacher. 2) All humans are driven by a shifting combination of motivations, including and especially hope and fear. At first, they hoped for a big win, then they feared a big loss. The class discussion then related this to the experiences of the boys in Golding’s Lord of the Flies. Perhaps a reference to this little experiment will show up in their essays to argue whether or not civilization is just a mask to hide our savagery.

How does this relate to writing? A good storyteller needs to understand human motivation just as much as any game theory analyst. If characters are going to seem alive, they have to experience hope and fear—not just the main character, but also the villain, the minor characters, and everyone in between. As Kurt Vonnegut said: “every character should want something, even if it is only a glass of water.”

Oh, and for those poor students who ended up in the Style Point poor house because of my evil auction, I think I’ll surprise them by forgiving their debt after New Year’s. I realize that if any of them read this it won’t be a surprise, but, fortunately for me, they don’t know this blog exists. 😉

So what are your character’s motivations? What are the most interesting, compelling, or original motivations of characters you’ve enjoyed reading? I figure it’s worth spending a few Style Points to find out.

About Sechin Tower

Sechin Tower is a teacher, game developer, and author of MAD SCIENCE INSTITUTE, a novel of creatures, calamities, and college matriculation. He lives in Seattle, Washington.
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One Response to Bidding $100 to Win $20

  1. Lugh says:

    That is one of my favorite examples of game theory. Because, unlike things like Prisoner’s Dilemma in which you have to make the “perfectly rational, perfectly informed” kind of caveats, the auction works exactly as intended for ordinary people. And it rides that line of epiphany, where your instinct says, “No one would ever pay more than $20 for a $20 bill!” but a few moment’s thought changes your mind.

    Incidentally, this does have more than just academic application. There are a host of new auction sites that use a closely related effect (quiBids is the one I see ads for the most). Each bidder must pay a certain amount to place each bid. If you are not the winner of the auction, you are simply out the cost of your failed bids. Consequently, you will tend to keep bidding. This variant tends not to produce the runaway bids that your example does, but it has the interesting economic effect of the site earning money for all the bids made, allowing them to easily sell merchandise at even less than they paid for it and still turn a tidy profit.

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