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Medium · Game Theory & Logic · Quant Trader interview question · game-theory, logic, behavioral-economics, cognitive-bias
You are participating in a 'Dollar Auction'. The rules are as follows: An item worth 1 dollar is auctioned off to the highest bidder. Bids must be in increments of 1 cent (0.01 dollars). The highest bidder wins the 1 dollar item and pays their bid. Critically, the second highest bidder must also pay their bid to the auctioneer, but receives nothing. Assuming both players are rational and aware of the game's dynamics, what is the optimal strategy for you in this auction?