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TM Speech 16: The dollar auction: explaining conflict

May 7, 2015

Speaking to inform: Project 5. The objective of this speech is to explain an abstract theory or concept . Time limit is 8 minutes.

“Let us play a Euro (dollar) auction. I have this Euro with me, and I want you to bid for this and it will be yours. The rules of the game is that the winner will get the Euro but the second highest bidder will also pay his final bid even if he or she doesn’t get the Euro. To keep it simple, the bids should be in five cents.

Ready? Let’s see the bids…

What you would eventually notice is that, once one of the bid reaches 50 cents and if the bidding continues beyond that, the auctioneer is always to gain. That is, the total bid value is greater than the actual worth of what is being bid. If two people are bidding and one bids 50, the other 45 cents, another has to bid 55 cents (he still has a gain of 45 cents). If the other quits, he loses 45 cents, but the auctioneer has gained 5 cents. The bidding continues until each individual can afford not to lose any. However, it doesn’t stop there. Let’s see what happens in the 95/90 cents bidding scenario. For the latter to get the dollar, say he would bid 1.05 so that he can restrict his loss to 5 cents instead of 90 cents. But, the former has lost 95 cents and he would do the same and this escalates beyond control. It then becomes only a game where the players try to cut their losses relatively to each other while the auctioneer stands to gain no matter what they do. The game stops only when one of the bidders becomes bankrupt (after conceding all he has).

What are the strategies to play such a game then without losing? Just don’t play it all! Or the one who thinks is a stronger player gives an indication that he will make sure he will ruin the other parties prospects well in advance. For eg, one player could indicate that he would bid 5 cents but if anyone else bids more, he would immediately bid 1 Euro. That will already send a signal to the opponent that it is worthless to play. In this case, no one is at loss or gain – including the auctioneer. It is therefore in the interest of the auctioneer that the bidding goes in small phases, and that it never ends.

What if I say, instead of 1 Euro it is a million or billion dollar auction? Would you forgo your investment of say, 500kEuro or five hundred million by quitting midway?

Now, do you think this happens in the real world? And sure it does. This model can explain why some conflicts in the world never seem to end.

Let us consider some examples. If you see some world conflicts, you often times see three parties. To warring parties, and the other – the auctioneer who is the arms seller. Anyone know who are the biggest gainers of arms trade? They are the five permanent members of the UN security council – USA, France, UK, China and Russia.

Consider the example of India and Pakistan fighting over Kashmir. The western powers who sell arms to both countries have it in their interest that the conflict never ends. Any time Pakistan is going to be on the verge of bankruptcy, immediate aid is pumped in. Similarly, every conflict in the middle east has the same pattern. These are the countries who happen to be the biggest importers of arms from the western powers. In addition to the auctioneers, the politicians and the military heads from both warring factions are also to gain – and all at the expense of common people.

Billions and billions of dollars are spent in arms trade and conflicts. The enormous losses it causes to people is heart wrenching. Imagine the amount spent instead on eliminating poverty and raising the standards of living.

This conflict escalation need not be restricted to world problems. If we observe carefully, we can notice them in our daily life as well. Companies spending humongous amount of  money on certain projects that seem to go no where, triangle love stories, and any situation where you have already spent something worthy that leads to no where.

Having an understanding of these phenomena through such simple models like dollar auction can help us comprehend its myriad ways. Once we become aware, we can then work dispassionately in matters that are in our control in order to bring any change we wish to see.

References:

http://www.deeshaa.org/dollar-auctions-and-deadly-games/

http://top5ofanything.com/list/3de39a18/Countries-that-Sell-the-Most-Arms

http://www.math.toronto.edu/mpugh/Teaching/Sci199_03/dollar_auction_1.pdf

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