Tuesday, May 04, 2004

Google's "Winner's Curse" (via BoingBoing): "In its registration statement Google links the dangers of the winner's curse to speculation that its share auction might attract a "lower level of participation by professional long-term investors." What Google is essentially saying is that whereas sophisticated investors understand the winners curse and will factor it into their bid, unsophisticated investors might not. If these naive investors end up dominating Google stock auction then Google shares will initially trade for more than their worth, but when professionals take over the day-to-day trading of Google the stock will quickly fall to its true value, punishing all investors ignorant of the winner's curse."