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Holding on for too long? An experimental study on inertia in entrepreneurs' and non-entrepreneurs' disinvestment choices

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  • Sandri, Serena
  • Schade, Christian
  • Mußhoff, Oliver
  • Odening, Martin

Abstract

Disinvestment, in the sense of project termination and liquidation of assets including the cession of a venture, is an important realm of entrepreneurial decision-making. This study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non-entrepreneurs. Our experimental results reject the standard net present value approach as an account of observed behavior. Instead, most individuals seem to understand the value of waiting. Their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real options reasoning. We also observe a pronounced ‘psychological inertia’, i.e., most individuals hold on to a losing project for even longer than real options reasoning would predict. The study provides evidence for entrepreneurs and non-entrepreneurs being quite similar in their behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 76 (2010)
Issue (Month): 1 (October)
Pages: 30-44

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Handle: RePEc:eee:jeborg:v:76:y:2010:i:1:p:30-44

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Real-options reasoning Economic experiments Psychological inertia Disinvestment choices Entrepreneurship;

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Cited by:
  1. Margarian, Anne, 2009. "The regional specifity of structural change in agriculture: An assessment of the role of farmers’ strategic behaviour on the land market," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers, Humboldt University Berlin, Department of Agricultural Economics 59522, Humboldt University Berlin, Department of Agricultural Economics.
  2. Cooper, David J. & Saral, Krista Jabs, 2013. "Entrepreneurship and team participation: An experimental study," European Economic Review, Elsevier, vol. 59(C), pages 126-140.
  3. Schade, Christian & Snir, Avichai, 2012. "When the stress of quitting meets the cost of playing: An Experiment on to quit or not to quit?," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers, Humboldt University Berlin, Department of Agricultural Economics 134426, Humboldt University Berlin, Department of Agricultural Economics.
  4. Mußhoff, Oliver & Hirschauer, Norbert & Hengel, Philipp, 2011. "Sind Unternehmensplanspiele ein geeignetes Instrument zur Analyse begrenzter Rationalität und tatsächlichen Entscheidungsverhaltens?," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 60(3).
  5. Holm, HÃ¥kan J. & Opper, Sonja & Nee, Victor, 2013. "Entrepeneurs under Uncertainty: an Economic Experiment in China," Knut Wicksell Working Paper Series 2013/1, Knut Wicksell Centre for Financial Studies, Lund University.
  6. Tubetov, Dulat & Musshoff, Oliver & Kellner, Ulla, 0. "Investments in Kazakhstani Dairy Farming: A Comparison of Classical Investment Theory and the Real Options Approach," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, Humboldt-Universität zu Berlin, vol. 51.
  7. Appel, Franziska & Musshoff, Oliver, 2011. "How appropriate are myopic optimization models to predict decision behaviour: A comparison between agent-based models and business management games," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 115994, European Association of Agricultural Economists.
  8. Iván Arribas & Penélope Hernández & Amparo Urbano Salvador & Jose E. Vila, 2012. "Are social and entrepreneurial attitudes compatible? A behavioral and self-perceptional analysis," Discussion Papers in Economic Behaviour 0512, University of Valencia, ERI-CES.
  9. Artinger, Sabrina & Schade, Christian, 2013. "Girls will be Girls: An Experimental Study on Female Entrepreneurship," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers, Humboldt University Berlin, Department of Agricultural Economics 146511, Humboldt University Berlin, Department of Agricultural Economics.
  10. Burmeister-Lamp, Katrin & Lévesque, Moren & Schade, Christian, 2012. "Are entrepreneurs influenced by risk attitude, regulatory focus or both? An experiment on entrepreneurs' time allocation," Journal of Business Venturing, Elsevier, vol. 27(4), pages 456-476.
  11. Ihli, Hanna Julia & Maart, Syster Christin & Musshoff, Oliver, 2012. "Investment and Disinvestment in Irrigation Technology – An Experimental Analysis of Farmers’ Decision Behavior –," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124532, Agricultural and Applied Economics Association.
  12. Huettel, Silke & Narayana, Rashmi & Odening, Martin, 2011. "Measuring dynamic efficiency under uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers, Humboldt University Berlin, Department of Agricultural Economics 129062, Humboldt University Berlin, Department of Agricultural Economics.
  13. Maart, Syster Christin & Musshoff, Oliver & Odening, Martin & Schade, Christian, 2010. "Zum Desinvestitionsverhalten Landwirtschaftlicher Unternehmer: Ergebnisse Einer Experimentellen Untersuchung," 50st Annual Conference, Braunschweig, Germany, September 29-October 1, 2010, German Association of Agricultural Economists (GEWISOLA) 93943, German Association of Agricultural Economists (GEWISOLA).
  14. Holm, HÃ¥kan J. & Opper, Sonja & Nee, Victor, 2012. "Entrepreneurs under Uncertainty: An Economic Experiment," Working Papers, Lund University, Department of Economics 2012:4, Lund University, Department of Economics.

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