Imagine I am going to sell a $100 bill by auction. The bidding starts at $1.
The regular rules of auctions apply, and if you are the second-highest bidder you still have to pay what you bid but you don’t get the $100 bill.
I get bids for $1, $2, $3. Why not? They might win $100 for only $3! But the bids keep coming.
Once they get to $99, the person offering $98 thinks, “Uh oh. The other person isn’t backing down.” They raise their bid to $100, so as not to be second-highest bidder and lose it all.
But now the person offering $99 raises their bid to $101. Better to lose only $1 than $99, right?
Soon they’re offering me well over $100 to buy a $100 bill, just hoping the other person quits first.
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. Homeowners buy a house at the top end of their budget. Romantics fall for someone who is already in a relationship. Later they complain about how they’re so in debt, or their sweetheart is cheating.
Sometimes the smart choice is to say no to the whole game.