Serious question: how would you take putative knowledge that IPO prices are sometimes set too high for the reasons Rolf gives (or even that stock prices in general are subject to anchoring bias or exhibit hysteresis) and use it to make huge amounts of money, particularly given a limited initial bankroll? I am clearly not an economist, so even a rough sketch would help me understand.
Presumably, if you know a stock is too highly priced at its IPO (or any time, really), you short it. Unfortunately the hypothesis "some IPO prices may be subject to manipulation by insiders who know about the anchoring bias" doesn't tell you which ones. I suppose you could try systematically shorting every IPO that comes along, but presumably if that were a viable strategy someone would already be exploiting it; it's too simple not to have been spotted. Besides, I think the transaction costs are too large for a small player to make any money with this sort of strategy.
Facebook IPO'd at a price of 38 dollars a share, which apparently gave it a price-to-earnings ratio in the range of 100 - extremely, fantastically high. The price dropped pretty rapidly and is currently somewhere around 20 dollars; which still, presumably, gives it a very high P/E ratio somewhere in the forties. Now, suppose it had IPO'd at a more historically-reasonable P/E of, say, 20 - still high, but not stratospheric. That would put the initial share price somewhere around 10 or 12 dollars. Is there any strong reason to believe that the price would then have *risen* to where it is now? It is not obvious to me that the current price is supported by anything but the historical price - in other words, it's trading around 20 because it has recently traded around 25.
My point: I can't help but wonder if someone connected to the IPO had read Kahneman on anchoring. Somebody, clearly, was buying the stock at 33, just as someone is still buying at 20; I wonder if the chain of thought had that apparently-arbitrary number "38" in it somewhere, making 33 look cheap - fundamentals be damned! And if this happened, who benefited, and what ought we to conclude about the efficiency of markets?