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Public Markets For Predicting Google's Market Cap

Posted by timothy on from the put-your-non-money-where-your-mouth-is dept.

k2enemy writes "The Iowa Electronic Markets have created two markets where traders may buy and sell contracts based on beliefs of Google's market cap at the end of the first day of public trading. The first market, GOOGLE_LIN, trades contracts with liquidation values linearly dependent on the market cap. The second, GOOGLE_WTA, trades six unique and exhaustive contracts in a winner-takes-all market. The markets are currently suggesting a market cap around $30-35 billion. The IEM is also popular for its political markets, which have been very successful (more accurate than polls) at predicting political elections."

14 of 169 comments (clear)

  1. FUD by swordboy · · Score: 4, Interesting

    Anyone else notice the amount of FUD concerning the IPO? Google is the first to step in and help the little investor and, all of a sudden, the rich people are funding FUD campaigns so they can get in on the deal.

    --

    Life is the leading cause of death in America.
    1. Re:FUD by HMA2000 · · Score: 2, Interesting

      Are you high? Google is not helping the small investor. If they wanted to help the small investor they would not make you buy a minimum of 500 shares at 100+ a pop through their auction method. If anything they are trying to keep the small investor AWAY from the IPO (which may actually be helping them.)

      There's lots of reasons for the FUD, mostly because when you're dealing with billions of dollars that may or may not be spent there is a lot of fear, uncertianty and doubt. I'm sorry if this clashes with your Capitalist = Evil mentality.

  2. Ironic... by xIcemanx · · Score: 3, Interesting

    that these people are pretty much "gambling" on the stock market, something that is pretty much gambling in and of itself.

    It's like gambling on someone else playing the slot machine. o.O O.o What's the point?

    1. Re:Ironic... by maan · · Score: 4, Interesting

      There's a subtle but interesting difference here, though. Whether the stock market is or isn't gambling is obviously a question in and of itself. But, by "adding a level of indirection", as you might say, you're "gambling" on people's reaction to how the stock will perform.

      Same with the slot machine. Indeed, a slot machine is supposed to be (nearly) completely random in its outcome. But how a player behaves at a slot machine is anything but random! So you're not betting on the same thing... It becomes very very interesting ;)

      Maan

    2. Re:Ironic... by TheClarkey · · Score: 5, Interesting

      The point is quite simple.

      Your guess and my guess will probably be different due to different influences.

      The theory goes, if you take a large enough sample of opinions from a mixture of sources, tech experts, financial experts, normal people the market prediction (i.e. the average of all the guesses) will be a closer guess than any one single expert.

      It isn't like gambling on a slot machine as a slot machine is pretty much a game of chance and odds.

      I'd suggest that you might find The Wisdom of Crowds by James Surowiecki useful, if your really interested in how these kind of decision markets work.

    3. Re:Ironic... by NickFitz · · Score: 2, Interesting

      I don't know what the law in the States is like, but in the UK, these people make out a good case for slot machines being rigged. In brief, they use an emulator which will run fruit machine code, allowing you to play until you get a gamble, lose, go back to the saved machine state before the gamble, choose the alternative option and... lose again!

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    4. Re:Ironic... by Erwos · · Score: 2, Interesting

      Going a touch OT here, but "unlike putting the money in a bank" is simply not true.

      For all the faults our country has, our banking system is wonderfully reliable, regulated pretty intelligently, and is one of the few things that should be that way.

      Yet banks _do fail_. That's why they have to be insured by the FDIC. However, you're probably saying "but wait! I've never heard of them failing in the US".

      The simple answer is, when your bank goes bankrupt (or is on the way), instead of having the FDIC bail them out, the failing bank's assets are simply sold to another bank, where they (presumably) will be managed better. You, the bank customer, never hear about this except for a notice in the mail talking about how your bank was bought by some other bank, or "merging" with them. The industry knows that FDIC bail-outs look ugly in the paper, and that this is an excellent way to pick up some assets on the cheap.

      But, the FDIC _could_ be forced to bail them out - at which point all your funds above $100,000 will be lost. So banks do, in fact, entail a little bit of risk.

      However, I just wanted to correct the impression that "putting your money in the bank is totally safe". It's not true, especially if you've got more than hundred grand in there.

      But that's a nitpick, and the parent is right in the sense that "a sure thing" is like 99% going to happen, and a gamble is something that's less than some percentage (based on your risk aversion).

      -Erwos

      --
      Plausible conjecture should not be misrepresented as proof positive.
  3. Interesting Idea by lachlan76 · · Score: 3, Interesting

    It's an interesting idea of how to make predictions, because after all, like in real life, a lot of people will vote for someone/not at all because they think everyone else has.

    Kind of like one of those equations in Neural nets. I can't remember it exactly, I think it was something like 1/(e^(-t)*log(t)) that causes more change when the votes are close, and less when it's near the extremes, since with a very high/low buying price, you change people's confidence in that decision.

    I always thought it would be interesting to try it on /., with an uncapped mod limit, but there is a big change around the 2-3 area, but when you get to -1/5, each moderation becomes less of a change. Not really practical though. Wouldn't want to hurt /. servers.

    1. Re:Interesting Idea by ArsenneLupin · · Score: 2, Interesting
      It's an interesting idea, but what would happen if Google cancels its IPO at the last moment? Lots of companies have cancelled/postponed their IPO, if they have felt that the economic climate was not quite right (Telefonica?). In that case, who will win the GOOGLE_LIN / GOOGLE_WTA markets?

      The same question obviously applies to other similar secondary markets as well ;-)

  4. Remember terrorism futures? by shoppa · · Score: 2, Interesting
    Remember DARPA's terrorism futures?. This can get controversial sometimes. Actually, it's probably good when it's controversial... putting things into dollars gets around all the policitical hyperbole.

    Disclaimers: My PhD advisor was a member of JASON and one of my girlfriends in college was there at the very beginning of the Iowa Electronic Market.

  5. Re:$30 BILLION?! by Anonymous Coward · · Score: 1, Interesting

    If you get a chance, stop by yahoo.com and see what powers their search engine. Google does other things besides hanging out at google.com. They license their search technology to other companies. Hence.. A PRODUCT is shipped.

  6. Re:$30 BILLION?! by Anonymous Coward · · Score: 1, Interesting

    But the point isn't how many services they offer that make money.

    A companies value is based at least partially on how many real-world assets they posses (ie server farms), and how much profit potential they have.

    Compare and contrast assets and profits and "company value" on fortune 500 companies.

    Then do the same thing on dotcoms from 5 years back, and then on google.

    Irrational Exuberance is the term Alan Greenspan used.

  7. The problem with shipping products by SmallFurryCreature · · Score: 2, Interesting
    You mention real companies. But real companies are settled. The margins are becoming so tiny as to be almost non-existent. Supermarkets make fractions of a cent on certain products. The most striking is that there is more profit margin on the packing material of harddisks then on the platters.

    Shipping, storage, handling, packaging all costs heaps and heaps of money and there really are no more ways to save. But what if you don't need any of that? Google doesn't have to deal with dockworkers strikes, faulty ingredients, recalls, fluctuating material prices, outlawing of certain materials. Nothing. Just make a product and sell sell sell.

    Airline companies are going bankrupt while doing real things as you would put it. A single accident killed the concorde, rising oilprices are making airline companies grown and victims of "accidents" are starting to demand massive damages as they learn the accidents happen because of cut downs in maintenance.

    So where do you put your money? In clean simple google? Or one of the messy real industries?

    The only problem with buying google shares is that is to late. Best time to invest is at the start. Not when the company is already long established.

    --

    MMO Quests are like orgasms:

    You may solo them, I prefer them in a group.

  8. Another related site: Foresight Exchange by monkeyfamily · · Score: 2, Interesting

    Just last night I was browsing the Foresight Exchange, one of the oldest trading floors for betting fake money on real world events. They've nothing related to Google right now, but you can speculate on claims from the year of the first human Mars landing to the likelihood of fangs and tails becoming fashionable body modifications by 2010.