Why Facebook Investors Ignored The Signs of Its Doomed IPO

During the build up to Facebook's initial public offering last month, there were plenty of clues to suggest that it wouldn't make small investors any money. But that didn't stop them flocking to the deal, in turn wasting their money. Why is that?

Writing in the Harvard Business Review, Rebecca Waber explains that it was all down to something called Availability Bias. Read Write Web neatly summarises the effect:

"The theory here is that many small investors were snagged by the Facebook IPO because they felt comfortable putting their money in something they knew. After all, they and more than 900 million other people use Facebook, so how can it not be a good investment?"

It wasn't just small investors who fell foul of the effect—some corporate investors did, too. Let's just hope they're all in line for some of NASDAQ's compensation. [Harvard Business Review via Read Write Web]