All-Pay Auction

Most bidders lose an auction. In an all-pay auction, most bidders really lose.

In a standard auction, people submit bids for some prize, but only the highest bidder actually pays. Meanwhile, the rules of an all-pay auction force everyone to pay, whether they win or not.

The all-pay auction largely exists as a theoretical concept, popular in game theory and in other related economic debates. Conceptually, an all-pay auction should increase the amount the seller gets for the prize, while in theory (you'll notice we're using the word "theory" a lot here) efficient strategy on the buyer's part could lower their costs as well.

After all, traditional lotteries could be described as one-price all-pay auctions where you can choose to bid $1 for a $300 million prize (in that case, you can also vary your bid by buying additional tickets, which do - ever so incrementally - improve your chances to win). But of course, most lottery players lose money over time.

All-pay auctions are also used as metaphors for other aspects of life, such as biological functions. Two rams battling over the affections of a female sheep are engaged in an all-pay auction, since each pays with a headache (or worse) no matter which one wins. In theory, anyway.