Investment timing with information-processing constraints

Congming Mu, Jinqiang Yang and Yuhua Zhang

Finance Research Letters, 2020, vol. 32, issue C

Abstract: This paper investigates the implications of information-processing constraints (rational inattention) for the optimal investment timing and the corresponding value loss based on the real option framework with incomplete information. We find that an agent with rational inattention tends to overinvest and that the loss in option value decreases in the information channel capacity.

Keywords: Real options; Optimal investment; Information-processing constraints; Channel capacity (search for similar items in EconPapers)
JEL-codes: D81 D83 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:32:y:2020:i:c:s154461231830607x

DOI: 10.1016/j.frl.2019.01.001

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