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Every election cycle, the numbers get bigger. Campaigns burn through billions of dollars. Candidates mortgage their credibility, their time, and sometimes their dignity. The losing side walks away with nothing but debt and disappointing phone calls from donors. The whole spectacle looks insane from the outside, yet everyone keeps playing. Why?
The answer lies in a peculiar corner of game theory called the all-pay auction. Understanding this concept explains not just why campaigns cost so much, but why they’re structurally designed to drain resources until candidates hit the limits of what they can possibly spend.
What Happens When Everyone Pays But Only One Wins
Imagine a charity auction with a twist. The highest bidder wins the prize, but here’s the catch: everyone pays their bid regardless of whether they win. Bid $100 and lose? You still owe $100. The winner pays their bid and gets the prize. Everyone else pays their bid and gets nothing.
This is an all-pay auction. It sounds like a terrible deal, yet people participate. They participate because once you’re in, the math gets cruel.
Say you’ve already bid $50. Someone else bids $60. You could walk away and lose your $50, or you could bid $70 and maybe win. The $50 is gone either way, so it becomes what economists call a sunk cost. The rational move seems to be bidding higher. But your opponent faces the same logic. They’ve sunk $60. They bid $80. You bid $90. Round and round it goes.
Political campaigns work exactly like this.
The Campaign Trail as Auction Floor
Candidates don’t compete for votes in isolation. They compete for votes against opponents who are also spending money, time, and effort. The winner takes office. The losers take nothing except maybe a consulting contract or a book deal if they’re lucky.
Every dollar spent on advertising is a bid in this auction. Every hour spent fundraising is a bid. Every favor promised to a donor, every position compromised, every family dinner missed: all bids. And here’s the thing about political campaigns that makes them perfect all-pay auctions. The money spent doesn’t come back if you lose.
That $10 million television ad buy in Ohio? Gone whether you win Ohio or not. The salaries for 200 field organizers? Paid regardless of outcome. The opposition research, the polling, the consultants billing $500 an hour to tell you to smile more: all of it goes into the void if you lose.
Traditional auctions have a stopping point. People quit bidding when the price exceeds the value of the prize. But political campaigns have enormous prizes. The presidency controls trillions in spending, shapes law for generations, determines Supreme Court composition, and commands the most powerful military in history. How do you put a price on that?
You can’t. So the bidding keeps escalating.
Why Rational People Make Seemingly Irrational Decisions
Here’s where things get counterintuitive. In a regular auction, the rational strategy is straightforward. Decide the maximum value of the prize to you, bid up to that amount, and stop. Simple.
All-pay auctions break this logic. Game theorists have proven that in these auctions, rational players often bid more than the prize is worth. Not occasionally. Systematically.
Why? Because of the sunk cost trap. Once you’ve invested heavily, the marginal cost of bidding a bit more seems smaller than the total cost of walking away empty handed. Candidates who’ve spent $50 million often find it easier to spend $60 million than to accept losing after spending $50 million.
This creates what researchers call “escalation of commitment.” Political candidates demonstrate this beautifully. They start campaigns thinking they’ll run lean, efficient operations. They’ll be the smart ones who don’t overspend. Six months later, they’re mortgaging their houses to keep field offices open.
The 2020 presidential election cost over $14 billion. Not million. Billion. For context, that could fund NASA for roughly two years. It could provide clean water infrastructure for dozens of developing nations. Instead, it funded attack ads and rallies and consultants.
Was it rational? In the game theoretic sense, yes. Each candidate faced opponents willing to spend enormous sums. Unilateral disarmament meant certain loss. So everyone spent. And spent. And spent.
The Favorite’s Curse
Game theory reveals another weird aspect of all-pay auctions. Being the favorite can actually be disadvantageous.
When one candidate looks likely to win, they face a particular strategic problem. Underdogs know they need to spend heavily to have any chance. The favorite knows this. But the favorite also knows that underdogs might drop out if the gap looks insurmountable.
This creates a delicate balance. The favorite wants to discourage opposition spending by looking unbeatable. But if they look too unbeatable, they still have to spend heavily because underdogs, facing long odds, might go all-in on risky strategies.
Meanwhile, underdogs have nothing to lose. When you’re predicted to get 30% of the vote, you might as well try aggressive tactics. Spend everything on a Hail Mary. The establishment candidate has a reputation to protect. The insurgent can be reckless.
This dynamic played out in the 2016 Republican primary. Trump faced criticism for tactics that establishment candidates wouldn’t touch. But as the underdog against the entire party apparatus, he had structural incentives to be bold. The establishment candidates, trying to preserve their political futures and party relationships, faced constraints he didn’t.
The favorite’s curse extends beyond spending. Frontrunners attract more scrutiny, more opposition research, more media attention. Every statement gets analyzed. Every past decision gets questioned. Meanwhile, long-shot candidates operate in relative obscurity until they become threats.
Why Campaigns Don’t Spend Efficiently
Traditional economic theory suggests markets push toward efficiency. Competition should drive down prices and improve quality. Political campaigns do neither.
Part of the problem is information. In a normal market, buyers know roughly what they’re getting. Buy a car, you can test drive it, check reviews, compare models. Vote for a candidate? You’re buying promises about future behavior. You’re buying personality, judgment, coalition management skills that won’t be tested until after the purchase is complete.
This uncertainty means campaigns spend vast sums on signaling. Candidates don’t just need good policies. They need to convince voters they have good policies. They need name recognition. They need to seem electable, which often means proving they can raise money, which requires spending money to raise money. The whole thing becomes circular.
Advertising saturates markets not because the last million dollars in ads provides significant marginal benefit, but because not spending that million means your opponent has unanswered attacks. The equilibrium isn’t efficiency. It’s mutual exhaustion.
The Collective Action Problem Nobody Solves
Every few cycles, someone proposes campaign finance reform. Spending limits. Public financing. Shorter campaign seasons. These proposals face fierce resistance, but even when they pass, they rarely stick.
Why? Because campaign spending is a collective action problem, and those are notoriously hard to solve.
Imagine two candidates agree to limit spending. Great! They’ll both save money. But if one cheats and spends more, they win. Knowing this, both have incentives to defect from the agreement. Without enforcement, cooperation collapses.
Even with legal limits, money finds cracks. Super PACs. Dark money groups. Issue advocacy that definitely isn’t coordinating with campaigns, wink wink. Independent expenditures. The Balloon squeezes in one place and bulges in another.
Public financing systems try to solve this by removing the auction element. Give everyone the same resources. But these systems face problems. What counts as campaign spending? Does a newspaper endorsement count? What about a popular podcast host who happens to like a candidate? What about organic social media movements? The information environment is too complex to regulate completely.
When More Players Make Things Worse
Most game theory focuses on two-player scenarios. Political primaries often feature many candidates. This multiplies the chaos.
In a two-person all-pay auction, both players lose money on average, but there’s a certain logic to it. Add more players and things get wild. Each additional candidate changes everyone else’s calculations.
When five candidates compete, the eventual winner might only need 25% of the vote in early contests. That means 75% of voters back other candidates. Those other candidates collectively spend far more than the winner, all losing their investments.
The 2020 Democratic primary illustrated this perfectly. Nearly 30 candidates eventually entered. Most burned through millions before dropping out with single-digit polling. The money didn’t evaporate. It paid consultants, staff, advertising, travel. All of it chasing a prize only one person could win.
More candidates also mean more attacks from more directions. This drives up defensive spending. A frontrunner in a two-way race can focus fire on one opponent. A frontrunner facing six opponents needs to respond to attacks from every angle.
The math gets particularly interesting with wealthy self-funding candidates. When someone can outspend opponents from their personal fortune, it forces everyone else to spend more on fundraising. Time spent fundraising is time not spent campaigning. This creates an indirect advantage beyond the money itself.
The Donors’ Dilemma
Political donors face their own game theory problems. Give to a candidate early when they need money most, and you build goodwill if they win. But they might lose, and your money vanishes. Give to the frontrunner, and your contribution matters less because they’re already winning.
This creates strategic bundling. Donors hedge bets by giving to multiple candidates. They give early to build relationships, then give again when primaries narrow the field. Some donate to both parties to ensure access regardless of outcome.
From the candidates’ perspective, this looks like influence-peddling. From the donors’ perspective, it’s risk management in an all-pay auction. Everyone pays, but donors pay twice: once in contributions and again in the policies they get (or don’t get) after the election.
The really sophisticated donors play a deeper game. They fund think tanks that shape policy debates. They support advocacy organizations that move public opinion. They invest in the long-term infrastructure that makes certain policies seem natural and others seem radical. This meta-game happens years before elections and shapes the range of feasible positions candidates can take.
Why Nobody Can Unilaterally Disarm
Every election features at least one candidate who promises to reject big money. They’ll run a grassroots campaign. They’ll prove you can win without selling out. They’ll change the system from within.
Sometimes these candidates do well. Small-dollar donations can add up. Volunteer enthusiasm can substitute for paid staff. Social media can replace television ads. But the math still catches them.
Because while they’re building grassroots support, opponents are building war chests. While they’re rejecting PAC money on principle, opponents are flooding airways with ads. The high road might be morally satisfying, but game theory cares about winning strategies, not satisfying ones.
Candidates who refuse to play the spending game send a signal. They signal either they don’t want to win badly enough, or they don’t understand how to win. Neither signal attracts supporters. Voters want winners. Donors want influence. Staff want salaries. Everyone involved has incentives pushing toward higher spending.
Even candidates who hate the system have to participate in it to acquire the power to change it. Want campaign finance reform? First, win a campaign. Want to win a campaign? Spend money. Where does the money come from? Donors who might not want reform.
It’s a trap with no obvious exit.
The Escalation Spiral
Game theorists call certain situations “dollar auctions,” a specific type of all-pay auction with a sadistic twist. Bids must increase by a set amount (say, $1), and both the highest and second-highest bidders pay. This creates a doom spiral where rational players keep bidding far beyond the prize value.
Political campaigns resemble this closely. Candidates can’t just maintain their spending levels. They need to outspend opponents. If your opponent runs 1,000 ads, you need 1,100. If they hire 50 field organizers, you need 55. The baseline keeps rising.
This explains why campaign costs increase faster than inflation. It’s not that campaigns become inherently more expensive. It’s that the competitive equilibrium keeps escalating. What cost $1 million in 1990 might cost $10 million today, not because ads are ten times more expensive, but because everyone else is spending ten times more.
The escalation feeds on itself. High-cost campaigns require professional management. Professional management becomes an industry. That industry develops incentives to maximize spending. More spending means more fees, more salaries, more business for the consultant class. The people running campaigns professionally have structural incentives to normalize expensive campaigns.
What It All Means
Political campaigns are expensive for the same reason companies overbid in spectrum auctions or countries overspend on Olympic hosting: the prize is unique, the competition is fierce, and everyone pays regardless of outcome.
Game theory doesn’t judge whether this is good or bad. It simply explains why it happens. The structure creates incentives. The incentives produce behavior. The behavior looks irrational from outside but feels necessary from inside.
Understanding campaigns as all-pay auctions explains several mysteries. It explains why frontrunners still spend heavily. It explains why losing candidates stay in races long after their chances evaporate. It explains why reforms rarely stick. It explains the relentless growth in campaign costs.
It also suggests why solving the problem is so hard. You can’t fix a structural incentive problem with good intentions. You need to change the structure. But changing the structure requires winning power within the current structure. Which means playing by the current rules. Which means spending the money. Which maintains the system.
There might be ways out. Public financing that actually works. Shorter campaign seasons. Strict spending limits with real enforcement. But implementing these requires solving the same collective action problems that created the expensive campaigns in the first place.
Until then, every election cycle will likely be more expensive than the last. Not because candidates are greedier or more corrupt. Not because voters demand it. But because game theory creates a logic that’s nearly impossible to escape.
Everyone pays. Only one wins. And the auction never really ends.