refer to table 7-10. if the price is $1,l50, who would be willing to supply the product? This is a topic that many people are looking for. caraimica.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, caraimica.org would like to introduce to you How To Sell a $1 Bill for $10 | The Dollar Auction Experiment. Following along are instructions in the video below:
This video. Im gonna show you how to sell a one dollar bill for for ten dollars. Im not gonna just show you how to do it i going to teach you the economics behind it and how to apply that lesson to making our world.
A better place hi. Im craig and welcome to market power. Where we like the power of markets and economics to shape our world and once you understand that power youre gonna understand choices and consequences and youll be able to make meaningful change in your community and in your personal life.
And you might say selling a dollar for ten dollars. Doesnt sound like a meaningful change not in society at least. But the how to behind this is part of the ingenious part of economics.
Its something i really love to do with my students. This is something i do with my students every semester. And this year.
I decided to film that part of the lecture. So that way you could see this in action. I have a dollar bill that i would like to sell to you see.
If i can dramatically unfold. This okay one dollar bill. Its just a regular one dollar bill.
Theres nothing literally nothing special about this except. I took it out my kids allowance. This morning.
Okay so i hope you can feel good about that the first step in how to sell your dollar. Its to set up an auction but not just any option. It has to have this specific rule.
And that is the top two bidders have to pay their bids that means. If the highest bid is ten cents and the second highest bid is five cents then the person who bid ten cents gets the dollar but they both pay so i get 15 cents. The second step is to just let people volunteer to participate in this auction.
And see where it goes i will start the bidding off at 5 cents. Okay five cents do i have ten cents. Oh yes.
I do take venmo. I do take venmo sorry of course of course. Im going to show you the final outcome of these auctions.
But there are three points. Where im going to pause and explain some interesting observations so that way you can see the economics of how this auction is evolving. So who would like to bid five cents on my dollar bill okay okay well well go here ten cents here.
Im gonna keep pointing at the two highest bids that way i know whos who fifteen cents okay twenty cents will go up beer youve had 25 cents three thirty cents thirty five cents forty cents forty five cents lets see you were 40 cents right 45 cents 50 cents 55 cents this is the first point where were gonna jump off on this show you how this keeps going. But you should recognize that this point. I have now made more than a dollar right.
Theres somebody who has bid 50 cents. And theres another person who has been 55 cents and that means. Im gonna get a dollar five.
So im now in the profitable range and any increase in the bids. Means that i get more money 80 cents oh up there even wow 85 cents 90 cents yeah so youre at ninety cents right now 95 95 cents a dollar youre bidding a dollar okay. This is the second place where i want to jump off because usually people think the auction is done at this.
Point im only selling a dollar and now the top bid is 100. So rationally no one would pay more than a dollar to get a dollar right. Do you think that this auction is done at this point.
Though you dont care at that point okay a dollar ninety five cents now hold on a second even though you might think. Its done at this point. I just say one thing and every single time.
The auction continues. If you bid a dollar five. You you get the dollar and youll only lose five cents.
If you dont bid a dollar five youll lose ninety five cents would you like to go up to a dollar five dollar five. So if you bid a dollar. Ten youll only lose ten cents.
But if you bid a dull. If you dont bid anything you lose a whole dollar so if you stay here and dont do anything youre gonna lose the dollar you have to pay me a dollar and get youre not losing no matter. What if he doesnt bid then you only lose ten 10.
10. 15. 15.
Fifteen now as usually at this point as the auction continues that economics. Professors like to point out that both of these players are acting rationally. Theyre both increasing the bid to decrease their losses.
But together theyre acting irrationally now were spending more money in total to get this single dollar right like it it seems irrational even though theyre both acting rationally. But thats not where i like to end this dollar. 20 20.
25 dollar 30. 35. 40.
40. 50 i went up to. 60 thats fine 200.
So your 1 60. 62. Thats fine you owe me.
2. You owe me 1 65. Do you have it now or do you want a venmo.
Me. So that auction ended with the top bidder paying. 2.
And the second place bidder. Paying 1 65. Which means they paid me three dollars and sixty five cents for a dollar bill now.
Im going to show you how the other auction ended and it actually ended at a higher price. But i want to explain to you why its so important to think about the lesson in this auction. It seems like a silly auction right.
Theres no way we would live in a world. Where people would set up and participate in this kind of auction. But if we think beyond just the basic this is an auction and were bidding something up and try to see what the application is in the real world youre gonna see that its really important.
Lets think of a territory that is worth 1 million. Dollars. And you have two countries fighting over that territory now you have each country willing to spend up to 1 million dollars to make sure they get it so maybe one says ill spend 750 thousand dollars.
It might not be actual dollars. It could be sending troops at war and they start fighting over this territory and then the other one says. Well im willing to spend 800000.
Until finally this war ends and they might actually spend individually more than 1 million dollars to try and get this territory. But even if they dont individually spend more than 1 million dollars. They together might spend more than 1 million.
Dollars total to try and get that territory and they really are spending. It think about people who are losing their lives to try and get this territory thats the same thing as the loser in the auction. Having to pay for the bid that he made the same thing happens with other properties that we might own we invest resources into protecting those properties.
When socially itd be more beneficial. If we could trust each other not to fight for that property. So this really teaches me about property rights.
When we have clear defined secured property rights. We dont waste resources towards trying to fight for that property. We clearly say who owns that property and then we dont have to worry about the loser paying for resources.
Wasted towards trying to get that property and the winner is better off the winner doesnt have to spend those resources towards protecting their property. Okay. So now youre wondering how did that second auction end would you like to bid 1 5.
5. You are here lets see where you are now going to lose a whole dollar for nothing would you like to bid 1 10. And only lose 10 cents 2 dollar.
5. He bid 2. So you will now lose 1 5.
Or if you go up to 205 youll still lose 1 5 foot. But you will have won youre gonna lose the same either way. But you will have beat him and he will have to pay me 2 3.
All right so you pay youre paying 2 for nothing. Hes paying 3 to get 1. Thats right i sold that dollar for 5 in that class.
They all paid via venmo and they all sent me some choice messages to express their frustration with me. But dont worry theyre all business students and i just told them they learned a lesson in business and probably the only one they ever need to learn i have two videos for you to check out after this one. If youre interested in the game theory.
In this video. You might be also interested in game theory in the dark knight if you like real life applications of economics go check out my 24 hour avengers marathon. Well see in those videos.
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