Learning to wait: A laboratory investigation
January 1, 2009
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.
Citation Information
Publication Year | 2009 |
---|---|
Title | Learning to wait: A laboratory investigation |
DOI | 10.1111/j.1467-937X.2009.00543.x |
Authors | Ryan Oprea, Daniel Friedman, Steven T. Anderson |
Publication Type | Article |
Publication Subtype | Journal Article |
Series Title | Review of Economic Studies |
Index ID | 70034884 |
Record Source | USGS Publications Warehouse |
USGS Organization | Eastern Energy Resources Science Center |