Here’s a little eye opener to try out next time you’re with a group of people. Auction off a $20 bill, the opening bid, a dollar, with bids climbing in one-dollar increments. It’s winner takes all, but here’s the catch. Both the winner and first runner up have to pay.

This won’t end well if it ends at all. Everyone will drop out but two bidders who continue outbidding each other, neither willing to surrender becoming the runner up who has to pay but gets nothing. People pay as much as fifty dollars for that twenty which looks irrational but isn’t entirely. After all, you would bid that first dollar, right? And once you’re in, you think, “bid still another to win rather than get nothing? Sure. That’s worth it.”

This winner-takes-all-loser-still-pays auction opens eyes to something fundamental about life, especially our lives today as millions invest heavily in careers where few succeed. Think of all those poor also-rans working at Starbucks who squandered on educations in high-flyer careers. Many are called; few our chosen to be the next big thing. But all the called still pay.

Or think of the billions spent by the also-rans this election season. Gingrich and Santorum lost but still pay. In fact we all pay. The auction drives escalating political extremism and media sensationalism.

Still, the auction is as old as life itself. Think of competition among alpha males and all those poor betas who have no offspring to show for their investment.

The auction explains war too. We may think megalomania makes leaders unwilling to surrender, but it’s mostly the auction that drives the carnage. Leaders say, “Bid another soldier to win? Sure. That’s worth it” until both sides are bled white.

We love and hate the auction. It’s our best engine for progress and innovation in business and science. But the auction misallocates resources something fierce. Government’s most underappreciated role is in limiting the auction’s waste in the many arenas where it does more harm than good.