It still strange to see a game with only one round and no collusion to land pretty close to the optimal, while its repeated version (dollar auction) seems to deviate badly from the Pareto outcome.
It is a bit strange. It seems this is because in the dollar auction, you can always make your position slightly better unilaterally, in a way that will make it worse once the other player reacts. Iterate enough, and all value is destroyed. But in a one-round game, you can’t slide down that path, so you pick by looking at the overall picture.
It is a bit strange. It seems this is because in the dollar auction, you can always make your position slightly better unilaterally, in a way that will make it worse once the other player reacts. Iterate enough, and all value is destroyed. But in a one-round game, you can’t slide down that path, so you pick by looking at the overall picture.