This is an example of the winner’s curse in the IPO context. An uninformed investor would expect to be rationed if the offering is underpriced. For every share requested, fair rationing means that she would only receive 1/3 of a share (due to the oversubscription by a factor of 3). Thus, this investor would earn 1

2

. 1 3

. (+15%) + 1 2

. 1 . (−15%) = −5%.