Sunk Cost and Marginal Cost: An Auction Experiment

Michael J. Haupert

Production and Firm Behavior
Auctions

Non-computerized experiment

The concepts of sunk and marginal costs can be difficult to get across to students. To do so, I employ an experiment that involves auctioning dollar bills in class. I tell the students that I will be auctioning dollar bills the next class period and to bring change if they are interested in participating. I impress upon them: there is no catch, I will be auctioning off genuine U.S. one dollar bills, each bill will be sold to the highest bidder, and I will auction off at least two dollar bills--more if there is sufficient interest.