I was listening to Mark Cuban say that there is no way that most of these AI companies will ever pay back the hundreds of billions of dollars they’re borrowing to spend on datacenters. His opinion was that it’s a winner-take-all situation and the only way to win is to spend more than your competitors. But in the end, the investors are going to be left holding the bag.

I’m not sure I agree with him, but it reminded me of this really perverse betting game that goes like this:

I’m going to auction off this \$100 bill. Anyone can bid on it and whoever is the highest bidder in the end gets it. The only twist is that, unlike a regular auction, everyone pays their highest bid. So, let’s say that when the bidding stops, Bob’s highest bid is \$50 and Alice bid \$51. Well, Alice pays \$51 and gets the \$100. Bob pays \$50 and gets nothing.

We actually played this at Jane Street a long time ago. But only once. It went something like this:

  • Patrick: I’m going to auction off this \$100 bill. (and states the rest of the rules)
  • Bob: $1 bid. \$1 for \$100! What a great deal. Patrick’s such a sucker.
  • Alice: $2 bid \$2 is still a great deal for \$100. And I’m not going to let Bob steal this so easily.
  • Bob: $3 bid
  • Alice: $4 bid
  • … this goes on for a while
  • Bob: $49 bid
  • Alice: $50 bid
  • Bob: $51 bid Weird… is Patrick actually going to make money on this? Shit.
  • Alice: $52 Ugh, I really hope I win this. I don’t wanna lose \$52.
  • … bidding continues
  • Alice: $90 bid
  • Bob: Hmm, how is this going to end? Oh I have an idea. $99 bid.
  • Alice: Shit! I don’t wanna bid \$100. But let me take stock of my options. Either I let Bob win and I lose $90. Or I bid \$100 and don’t make anything but at least I don’t lose anything. $100 bid
  • Bob: What!? Why would she bid \$100 for a \$100 bill. What do I do now? Bidding \$101 for \$100 seems really dumb, but that means I only lose \$1 instead of the \$99 I would lose otherwise. $101 bid
  • Alice: Shit…
  • Bob: Shit…
  • Patrick: Yep…