The King’s Auction

A king wanted to sell a jewel for its true value. If he set a price, he risked setting it too high or too low. If he asked buyers to bid, they might collude.

His advisor designed a sealed auction with a twist: the highest bidder wins, but pays the second-highest price.

Suddenly, every bidder’s best strategy was to bid exactly what the jewel was worth to them. Bidding lower risked losing. Bidding higher risked overpaying. Honesty became the dominant strategy.

The advisor didn’t make the bidders honest. He built a system where honesty was the smartest move.