Buridan's Ass and a Menu of Options

Svetlana Boyarchenko

Game Theory and Information from University Library of Munich, Germany

Abstract: 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.

Keywords: Real options; procrastination; choice between two projects (search for similar items in EconPapers)
JEL-codes: C61 D81 G31 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2005-01-31, Revised 2005-12-13
New Economics Papers: this item is included in nep-evo
Note: Type of Document - pdf; pages: 19
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:0501006

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