Imagine I am going to sell a $100 bill by auction, and the bidding starts at only $1.
The only rule of the game is this: If you are the 2nd-highest bidder, you still have to pay what you bid, but you don’t get the $100 bill.
Of course I get some bids for $1, $2, $3. Why not? They might win $100 for only $3!
The bids keep coming in. By $51 I’m happy — I’m going to profit now.
Once they get to $99, the person offering $98 thinks, “Uh oh. The other person isn’t backing down,” and raises their bid to $100 so as not to be 2nd-highest and lose the entire $98.
But now the person offering $99 raises their bid to $101. Better to lose only $1 than $99, right?
Soon they’re offering $110, $120, $150. This game could go on forever.
The real problem was not thinking it through in advance.
When the game starts, it’s easy to think short-term and say, “Ooh! Good deal!” Then when it’s too late, you slowly realize, ”Uh-oh. What have I done?”
A lot of people get into life situations like this. The entrepreneur who borrows a lot of money to test an idea. The homeowner who bought a house at the top end of their budget. The romantic who gets into a relationship with someone who is already in a relationship. You can hear them complaining about how they’re so in debt, or their sweetheart is cheating. The situation was stacked against them, so the smart choice would have been to not play that game at all.
We should always ask, “How will this game end?” It’s hard to think through the long-term implications of your actions, but it’s worth the effort.