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The market structure was the same as other IEM markets. Since descriptions of IEM markets are

available elsewhere, our description here will be brief.13

In IEM markets, traders invest their own money (initial investments can range from $5 to $500)

and reap the real money benefits or pay the real money costs associated with their trading activities and

contract holdings at liquidations.14 Each market is organized as a continuous, electronic, multiple-unit,

double auction. Traders can place limit orders (acting as endogenous market makers) or market orders at

any time.15 Bids and asks are kept in queues ordered by price and time. Traders set their own bid and ask

expiration dates and withdraw any bids or asks that have not yet traded. Traders buy or sell risk-free sets

of contracts (one of each contract in the market at a fixed price of $1, called “fixed price bundles”) from

or to the exchange at any time. They can trade individual contracts purchased as parts of bundles. And,

they can trade bundles at market prices (selling at the sum of the best bid prices or buying at the sum of

the best ask prices). At all times traders see the best available bids and asks for all contracts, and they can

retrieve histories of daily trading summaries (daily high, low, last, and average trade prices as well as

volumes in both units and dollars).

The IEM Google contracts expired after the first day of trading following the Google IPO.

Contract liquidation values were tied to Google’s market capitalization at the end of the first day of

trading in its public shares. As a result, we can build forecasts of Google’s capitalization using IEM

market prices. We use these forecasts, the quantity of stock issued, the IPO price of Google and the first-

day closing price of Google to:

  • (1)

    judge whether the forecasted market capitalization was close to the actual capitalization;

  • (2)

    determine whether the forecasted market capitalization was closer to the actual capitalization

than that implied by the IPO price;


See Forsythe, Nelson, Neumann and Wright (1992), Berg, Forsythe and Rietz (1997) and Forsythe, Rietz and


Ross (1999). This differs from traditional experimental markets in which the experimenter funds the subjects for money used in


the experiment and other experimental prediction markets in which no real money is used at all. The Google markets were open to all traders, not just academic traders. Any person, worldwide, could become a

trader by sending an investment to the IEM.


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