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Uncertainty and the Cost of Reversal

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  • Giovanni Immordino

    ([1] CSEF, Università di Salerno, Italy [2] Giovanni Immordino, Dipartimento di Scienze Economiche, Università di Salerno, Via Ponte Don Melillo 80084, Fisciano (SA), Italy, e-mail: giimmo@tin.it)

Abstract

For standard irreversibility theory the prospect of acquiring better information in the future should induce more flexible decisions: the “irreversibility effect”. This result relies on the definition of an irreversible position as one that would be technically or economically impossible to reverse. In practice, many positions can be reversed at an affordable cost. In this case an increase in informativeness alone is not enough to bias decisions in favour of more flexibility. We look for restrictions on decision sets, information structures and preferences that make possible to study the effect of information on flexibility. The Geneva Risk and Insurance Review (2005) 30, 119–128. doi:10.1007/s10713-005-4674-3

Suggested Citation

  • Giovanni Immordino, 2005. "Uncertainty and the Cost of Reversal," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(2), pages 119-128, December.
    • Handle: RePEc:pal:genrir:v:30:y:2005:i:2:p:119-128
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    Cited by:

    1. Martimort, David & Guillouet, Louise, 2020. "Precaution, Information and Time-Inconsistency: On The Value of the Precautionary Principle," CEPR Discussion Papers 15266, C.E.P.R. Discussion Papers.

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