Around the time of the Kargil war in July 1999, this is what Atanu Dey wrote in an article entitled “Dollar Auctions and Deadly Games“:
One enlightening model of human behavior is the so-called “Dollar Auction” which illustrates the sort of trap that conflicts can lead to with costly consequences. This auction proceeds much as a normal auction except that while the highest bidder gets to keep the $1 bill bid upon, the second highest bidder has to pay the auctioneer the amount of the second highest bid.
The only way to win at a dollar auction therefore is either to not participate or if one does begin, then to either reach a compromise with one’s opponent or to exit as early in the game as possible.
Wars too have the peculiar characteristic that both parties, winner as well as the loser, pay. The dollar auction game illustrates the trap that nations fall into in a process of conflict escalation given the structure of strategic games.
The dollar auction is a perfect model of the conflict that India faces against Pakistan, with Kashmir being the dollar being auctioned. The bids in this auction are the military expenditure of each nation and the auctioneer is the one who collects the spoils of the military expenditures of the two nations. Since advanced industrialized countries are the major suppliers of arms, they play the role of the auctioneer quite well.
If the long drawn-out India-Pakistan conflict is seen as a dollar auction game with the US as the auctioneer, it is easy to understand why it is in America’s interest to keep India engaged in a perpetual conflict with Pakistan that is costly for India but very profitable for the US. Read in that context, the Headley story starts to make sense as well. The plan has been executed to perfection. As they say, it’s all about Money, Honey!