Buridan's Ass and a Menu of Options
The goal of the paper is to study how a menu of options affects decisions of a rational agent facing uncertainty over future payoff streams. Using the real options approach, we demonstrate that multiple options not only increase the barrier which the underlying stochastic variable has to reach in order investment became optimal, but cause the investor to be inactive even when the cost of investment is vanishing. As a technical contribution, the paper suggests a robust method of solution of a two-point optimal stopping problem.
|Date of creation:||31 Jan 2005|
|Date of revision:||13 Dec 2005|
|Note:||Type of Document - pdf; pages: 19|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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- David K. Levine & Drew Fudenberg, 2006.
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- Svetlana Boyarchenko, 2004. "Irreversible Decisions and Record-Setting News Principles," American Economic Review, American Economic Association, vol. 94(3), pages 557-568, June.
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