U03Md5enU-0.pdf - MITOCW | watch?v=U03Md5enU-0 The following content is provided under a Creative Commons license Your support will help MIT

U03Md5enU-0.pdf - MITOCW | watch?v=U03Md5enU-0 The...

This preview shows page 1 - 3 out of 28 pages.

MITOCW | watch?v=U03Md5enU-0 The following content is provided under a Creative Commons license. Your support will help MIT OpenCourseWare continue to offer high quality educational resources for free. To make a donation or to view additional materials from hundreds of MIT courses, visit MIT OpenCourseWare at ocw.mit.edu. ANDREW LO: The other item that I auctioned off-- that's a good question. Well, first of all, before I tell you that, you'll note that I put those two packages up here in the front of the room for this first section. One was bigger than the other. And you guys got the smaller one, right? And you obviously know what that was. The bigger one turns out to have been a book. In fact, it's a book that I recently published on hedge funds. Now it turns out that the bidding of that second item went for $60. The bidding of the item that I sold to this auction went for $45. And the fact that it's a smaller package I think makes some sense of why it went for a smaller amount. That shows you the power of information, or lack of information, in terms of determining values. Yeah, question? AUDIENCE: Yeah, I was just going to ask if there was some insider information that would up the value of that second box? ANDREW LO: Well, I don't think so. And one of the reasons that I had two different packages and I showed this entire section the two different packages is to try to eliminate a bit of that private information. I don't believe there was any. If I used the same two items, then I think there would have been a concern that there might have been some information spill over. So I don't think that was it. In fact, I think what it was the size of the packages, believe it or not. So anybody that tells you that size doesn't matter I think is not being realistic. Was there another question back here? AUDIENCE: I had the same question. ANDREW LO: OK, yeah? AUDIENCE: How much did the book retail at? ANDREW LO: The book retails for $45. Now of course, I autographed the book, so-- [LAUGHTER] --so that probably reduced the resale value. We played-- I took the $60. No tears. Fair is fair. So this class, the individual who bid $45 for that iPod did very, very well indeed. And the student who bid $60 for the book didn't do quite as well. But that's the point of this example.
Image of page 1
It's that when you don't know what you're bidding for, when there's literally no information, you're obviously not going to get it exactly right. But you have to admit that in the grand scheme of things, it's actually not that far off, and not that far off in a very particular way. I want to, in particular, talk about the iPod. Because we are looking at something like a 70% discount off of the retail value of that for this class. Now I want to comment on that in the context of what's going on today. I want to spend a few minutes, before we start the lecture, talking about current events. Because finance of course involves current events. And right now we are going through an extraordinarily interesting set of times. I think that's a Chinese curse-- may you live in interesting times. Well, we're going
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 28 pages?

  • Spring '17
  • Jim Angel

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors