Sequential Investment Decisions with Bayesian Learning
AbstractThis paper analyzes investment decisions that can be made in a modular form. It is motivated by the empirical observation that managements are particularly worried about "downside" risk. With a sequential approach this risk is minimized. An investment in a module produces information as well as profits or losses. In our model a larger investment produces more information in addition to larger profits or losses. Costs for changing the level of the investment from period to period are introduced. The optimal sequential investment policy is studied for a two-period problem. Conditions are presented under which no investment, a partial investment, or a full investment in the first period is optimal.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 24 (1978)
Issue (Month): 7 (March)
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- Yue, Xiaohang & Mukhopadhyay, Samar K. & Zhu, Xiaowei, 2006. "A Bertrand model of pricing of complementary goods under information asymmetry," Journal of Business Research, Elsevier, vol. 59(10-11), pages 1182-1192, October.
- Alexander Zimper, 2011. "Do Bayesians learn their way out of ambiguity?," Working Papers 240, Economic Research Southern Africa.
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