This article presents the true story of an exercise conducted in an executive MBA class. The Dollar Auction has been used to great benefit in many classes on negotiations and organizational behavior. The case described here represents the most extreme outcome that the author or his colleagues have ever observed. It leads to a number of observations about emotions, rationality, and strategy in the heat of battle and provides an opportunity to discuss the potent effects of time pressure and competition in individual and organizational decision making.
Get full access to this article
View all access options for this article.
References
1.
Foreman, P.
, & Murnighan, J. K. (1996).Learning to avoid the winner’s curse. Organizational Behavior and Human Decision Processes, 67, 170-180.
2.
Hayward, M.
, & Hambrick, D. (1997).Explaining the premiums paid for large acquisitions: Evidence of CEO hubris. Administrative Science Quarterly, 42, 103-127.
3.
Hirt, E.
(1990).Do I see only what I expect? Evidence for an expectancy-guided retrieval model. Journal of Personality and Social Psychology, 58, 937-951.
4.
Kahneman, D.
, & Tversky, A. (1979).Prospect theory. Econometrica, 47, 263-291.
5.
Lucking-Reiley, D.
(1999).Using field experiments to test equivalence between auction formats: Magic on the Internet. American Economic Review, 89, 1063-1080.
6.
Malhotra, D., & Murnighan, J. K. (2000). Milked for all their worth: Competitive arousal and escalation in the Chicago cow auctions. Working paper, Kellogg Graduate School of Management, Northwestern University, under review.
7.
McAfee, R. P.
, & McMillan, J. (1987).Auctions and bidding. Journal of Economic Literature, 25, 699-738.
8.
Murnighan, J. K.
(1991). The dynamics of bargaining games. Englewood Cliffs, NJ: Prentice Hall.
9.
Roll, R.
(1986).The hubris hypothesis of corporate takeovers. Journal of Business, 59, 197-216.
10.
Schelling, T.
(1960). The strategy of conflict. Cambridge, MA: Harvard University Press.
11.
Shubik, M.
(1971).The dollar auction game: A paradox in noncooperative behavior and escalation. Journal of Conflict Resolution, 15, 109-111.
12.
Staw, B. M.
(1989).Understanding behavior in escalation situations. Science, 246, 216-220.
13.
Staw, B. M.
, Sandelands, L., & Dutton, J. (1981).Threat-rigidity effects in organizational behavior: A multilevel analysis. Administrative Science Quarterly, 26, 501-524.
14.
Yerkes, R.
, & Dodson, J. (1908).The relation of strength of stimulus to rapidity of habit formation. Journal of Comparative Neurological Psychology, 18, 459-483.
