Risky choices in strategic environments: An experimental investigation of a real options game

Azzurra Morreale, Luigi Mittone and Giovanna Lo Nigro

European Journal of Operational Research, 2019, vol. 279, issue 1, 143-158

Abstract: Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic nature of the outcomes and competitive rivalry. In this study, we experimentally test a theoretical model under fundamental uncertainty and competitive rivalry by designing a sequential interaction game between two players. The first mover can decide either to choose a sure outcome that assigns a risky outcome to the second mover or to pass the decision to the second mover. If the second player gets the chance to decide, she can choose between a sure outcome, conditioned by the assignment of a risky payoff to the first mover, or the sharing of the risky outcome with the first mover. We then introduce the following experimental treatments: (i) relegating second-mover participants to a purely passive role and substituting them with a random device (absence of strategic uncertainty – that is, when the source of uncertainty is a human subject); (ii) providing information about the behaviour of second-mover counterparts; and (iii) completely removing the second-mover participant.

Keywords: Behavioural OR; Uncertainty; Continuous distributions; Real options games; Laboratory experiments (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:279:y:2019:i:1:p:143-158

DOI: 10.1016/j.ejor.2019.05.013

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