People prefer winning to losing. This seems natural, but sometimes they prefer it so much that they’d rather win even when nothing can be won anymore. We’ve all seen it: a project is over-budget, over-complicated, overdue, and should just be declared over. But the people working on it have invested so much that they feel they have to keep going, even though it stands no chance of being profitable.
Swoopo.com is a company that takes advantage of that. You can bid for a $2000 computer for 1 cent, which seems like a no brainer. They then tell you every bid costs you 60 cents, but who cares? Then again, everyone else is bidding as well. So yeah, you could win the computer for $100, which is a bargain, but the company itself made $6000. Who covered that cost? The other bidders.
Anyway, it’s an interesting application of what in Game theory (and warfare theory) is called a war of attrition. Behavioral Economist (of Nudge fame) Richard Thaler has also written an article about it.
