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Learning to Wait: A Laboratory Investigation

Author

Listed:
  • Ryan Oprea
  • Daniel Friedman
  • Steven T. Anderson

Abstract

Human subjects decide when to sink a fixed cost C to seize an irreversible investment opportunity whose value V is governed by Brownian motion. The optimal policy is to invest when V first crosses a threshold V* = (1 + w*)C, where the wait option premium w* depends on drift, volatility, and expiration hazard parameters. Subjects in the Low w* treatment on average invest at values quite close to optimum. Subjects in the two Medium and the High w* treatments invested at values below optimum, but with the predicted ordering, and values approached the optimum by the last block of 20 periods. Copyright , Wiley-Blackwell.

Suggested Citation

  • Ryan Oprea & Daniel Friedman & Steven T. Anderson, 2009. "Learning to Wait: A Laboratory Investigation," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1103-1124.
  • Handle: RePEc:oup:restud:v:76:y:2009:i:3:p:1103-1124
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00543.x
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    Citations

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    Cited by:

    1. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Understanding the Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150331, Agricultural and Applied Economics Association.
    2. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Experimental examination of land investment decisions with volatile returns A comparison between Kazakhstani and German farmers," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122454, European Association of Agricultural Economists.
    3. Maart, Syster Christin & Musshoff, Oliver, 2011. "Optimal Timing of Farmland Investment - An Experimental Study on Farmers' Decision Behavior -," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103693, Agricultural and Applied Economics Association.
    4. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "The comparison of investment behaviors of Kazakhstani and German farmers: An experimental approach," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134770, Agricultural Economics Society.
    5. Ryan Oprea & Bart J. Wilson & Arthur Zillante, 2013. "War Of Attrition: Evidence From A Laboratory Experiment On Market Exit," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2018-2027, October.
    6. Maack, Moritz & Maart, Syster Christin & Musshoff, Oliver, 2012. "The Impact of Price Floors -A Real Options Based Experimental Approach-," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124328, Australian Agricultural and Resource Economics Society.
    7. repec:eee:jeborg:v:145:y:2018:i:c:p:495-510 is not listed on IDEAS
    8. Jacopo Magnani & Aspen Gorry & Ryan Oprea, 2016. "Time and State Dependence in an Ss Decision Experiment," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 285-310, January.
    9. Paul Viefers, 2012. "Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity," Discussion Papers of DIW Berlin 1228, DIW Berlin, German Institute for Economic Research.
    10. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the Investment Behavior of German and Kazakhstani Farmers: an Experimental Approach," Discussion Papers 122422, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    11. Ihli, Hanna Julia & Musshoff, Oliver, 2013. "Investment Behavior of Ugandan Smallholder Farmers: An Experimental Analysis," Discussion Papers 154775, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    12. Maart, Syster Christin & Musshoff, Oliver & Odening, Martin & Schade, Christian, 2011. "Closing down the Farm: An Experimental Analysis of Disinvestment Timing," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114375, European Association of Agricultural Economists.
    13. 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 124532, Agricultural and Applied Economics Association.
    14. Hermann, Daniel & Musshoff, Oliver & Agethen, Katrin, 2014. "I will never switch sides: an experimental approach to determine drivers for investment decisions of conventional and organic hog farmers," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183084, European Association of Agricultural Economists.
    15. Musshoff, Oliver & Maart-Noelck, Syster Christin, 2014. "An experimental analysis of the behavior of forestry decision-makers — The example of timing in sales decisions," Forest Policy and Economics, Elsevier, vol. 41(C), pages 31-39.
    16. Paul Viefers & Philipp Strack, 2014. "Too Proud to Stop: Regret in Dynamic Decisions," Discussion Papers of DIW Berlin 1401, DIW Berlin, German Institute for Economic Research.
    17. 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 93943, German Association of Agricultural Economists (GEWISOLA).
    18. Syster C. Maart-Noelck & Oliver Musshoff, 2013. "Investing Today or Tomorrow? An Experimental Approach to Farmers’ Decision Behaviour," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(2), pages 295-318, June.
    19. Tubetov, Dulat & Maart, Syster Christin & Musshoff, Oliver, 2012. "Comparison of the investment behavior of Kazakhstani and German farmers: An experimental approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124650, Agricultural and Applied Economics Association.
    20. Wilfred Amaldoss & Teck-Hua Ho & Aradhna Krishna & Kay-Yut Chen & Preyas Desai & Ganesh Iyer & Sanjay Jain & Noah Lim & John Morgan & Ryan Oprea & Joydeep Srivasatava, 2008. "Experiments on strategic choices and markets," Marketing Letters, Springer, vol. 19(3), pages 417-429, December.
    21. 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," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 30-44, October.
    22. Ciril Bosch-Rosa, 2014. "That's how we roll: an experiment on rollover risk," SFB 649 Discussion Papers SFB649DP2014-048, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    23. Steven T. Anderson & Daniel Friedman & Ryan Oprea, 2010. "Preemption Games: Theory and Experiment," American Economic Review, American Economic Association, vol. 100(4), pages 1778-1803, September.

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