Investment under uncertainty: Testing the options model with professional traders

John A. List; Michael S. Haigh

doi:10.1162/REST_a_00041

Investment under uncertainty: Testing the options model with professional traders

John A. List, Michael S. Haigh

Research output: Contribution to journal › Article › Research › peer-review

11 Citations (Scopus)

Abstract

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.

Original language	English
Pages (from-to)	974-984
Number of pages	11
Journal	Review of Economics and Statistics
Volume	92
Issue number	4
DOIs	https://doi.org/10.1162/REST_a_00041
Publication status	Published - 1 Nov 2010
Externally published	Yes

Access to Document

10.1162/REST_a_00041

Link to publication in Scopus

Cite this

List, J. A., & Haigh, M. S. (2010). Investment under uncertainty: Testing the options model with professional traders. Review of Economics and Statistics, 92(4), 974-984. https://doi.org/10.1162/REST_a_00041

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