TY - JOUR
T1 - Investment under uncertainty
T2 - Testing the options model with professional traders
AU - List, John A.
AU - Haigh, Michael S.
PY - 2010/11/1
Y1 - 2010/11/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=78650992912&partnerID=8YFLogxK
U2 - 10.1162/REST_a_00041
DO - 10.1162/REST_a_00041
M3 - Article
AN - SCOPUS:78650992912
SN - 0034-6535
VL - 92
SP - 974
EP - 984
JO - The Review of Economics and Statistics
JF - The Review of Economics and Statistics
IS - 4
ER -