Real Options and Game Theoretical Approaches to Real Estate Development Projects: Multiple Equilibria and the Implications of Different Tie-Breaking Rules
Tommaso Gabrieli Gianluca Marcato () (School of Real Estate & Planning, University of Reading)
Abstract
This paper builds on a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the information set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports: