, ,

Via Chris Hayes.

A columnist compares the Iraq War to a “dollar auction”, a standard tool that economics professors use to show seemingly rational thought processes leading to an irrational result.

Here’s how the dollar auction works: A person announces that they will auction off a dollar. The catch is that the second-highest bidder has to give the highest bidder the amount of their bid. For example, if the winning bid was 3 cents, and the second highest was 2 cents, the winner would gain $1.02 ($1 from the auction and 2 cents from his/her competitor.) In experiments, the bidding always escalates past the point where even the winner can expect to gain something. However, the bidding usually continues, as the rationale shifts to one of buffering losses with at least some meager returns, rather than actual gains.

Sound familiar?