Investment decisions, equivalent risk and bounded rationality

Carlo Alberto Magni

MPRA Paper from University Library of Munich, Germany

Abstract: The Net Present Value maximizing model shows fallacies and inconsistencies that may be easily unmasked by performing a cognitive analysis of the decision-making process implied by the maximization problem. The model may be conveniently rescued if the maximizing version of the criterion is shunt aside and a boundedly rational interpretation is given. The resulting ‘mixed strategy’, currently in use by many real-life decision makers, opens up terrain to a fruitful cooperation between bounded and unbounded rationality. This paper is consistent with a fluid and nondichotomous interpretation of dual-process theories.

Keywords: Finance; Investment decisions; Net Present Value; heuristics; bounded rationality; cognition (search for similar items in EconPapers)
JEL-codes: A12 B40 D81 G11 G30 G31 M20 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-cbe and nep-upt
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https://mpra.ub.uni-muenchen.de/7451/1/MPRA_paper_7451.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/13539/1/MPRA_paper_13539.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/13559/1/MPRA_paper_13559.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/13568/1/MPRA_paper_13568.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/13579/1/MPRA_paper_13579.pdf revised version (application/pdf)

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