Holding on for too long? An experimental study on inertia in entrepreneurs' and non-entrepreneurs' disinvestment choices
AbstractDisinvestment, 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 âpsychological inertiaâ, 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 InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 76 (2010)
Issue (Month): 1 (October)
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Real-options reasoning Economic experiments Psychological inertia Disinvestment choices Entrepreneurship;
Other versions of this item:
- Sandri, Serena & Schade, Christian & Musshoff, Oliver & Odening, Martin, 2010. "Holding on for too long? An experimental study on inertia in entrepreneurs’ and non-entrepreneurs’ disinvestment choices," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 59518, Humboldt University Berlin, Department of Agricultural Economics.
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