Investment under Uncertainty: Testing the Options Model with Professional Traders
نویسنده
چکیده
An important class of investment decisions is characterized by unrecoverable sunk costs, resolution of uncertainty through time, and the ability to invest in the future as an alternative to investing today. The options model provides guidance in such settings, including an investment decision rule called the bad news principle: the downside investment state influences the investment decision, whereas the upside investment state is ignored. This study takes a new approach to examining predictions of the options model by using the tools of experimental economics. Our evidence, drawn from student and professional trader subject pools, is broadly consonant with the options model.
منابع مشابه
Combination of real options and game-theoretic approach in investment analysis
Investments in technology create a large amount of capital investments by major companies. Assessing such investment projects is identified as critical to the efficient assignment of resources. Viewing investment projects as real options, this paper expands a method for assessing technology investment decisions in the linkage existence of uncertainty and competition. It combines the game-theore...
متن کاملEconomic Appraisal of Investment Projects in Solar Energy under Uncertainty via Fuzzy Real Option Approach (Case Study: a 2-MW Photovoltaic Plant in South of Isfahan, Iran)
Investment in renewable energies especially solar energies is encountered with numerous uncertainties considering the increased dynamism in economic and financial conditions and makes investment in this field irreversible to a large extent, paying attention to modern methods of economic appraisal of such investments is highly important. A framework is provided in the current study in order to e...
متن کاملValuing flexibility in demand-side response: A real options approach
The investment interests in the electricity industry are transmitted through various mechanisms to other economic activities. This paper considers methods for esteeming the adaptability of demand-side response (DSR) in its capacity to react to future uncertainties. The capacity to evaluate this adaptability is particularly critical for vitality frameworks speculations given their extensive and ...
متن کاملEconomic Appraisal of Solar Energy Projects under Uncertainty using a Fuzzy Real OptionApproach(Case Study: A 2MW Photovoltaic Plant in the South of Isfahan)
Investment in renewable energies especially solar energies encounters numerous uncertainties considering the increased dynamism in economic and financial conditions. It is thus important to use modern methods of economic appraisal for such investments. Our study provides a framework for use of the real option theory for economic appraisal of a 2MW photovoltaic plant in Isfahan province (as a ca...
متن کاملDynamic Relationship between Inflation Uncertainty and Private Investment in Iran: An Application of VAR-GARCH-M Model
This paper empirically investigates the relationship between CPI inflation uncertainty, and private investment in the Iranian economy from 1988 to 2010 by using quarterly data. We employ a bivariate VAR(5)-GARCH(1,1)-in-mean with diagonal BEKK model to discover in a unified framework how are the interactions between the variables. In the model, conditional variance of inflation and private inve...
متن کامل