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http://hdl.handle.net/10419/61311
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| Title: | | Should I stay or should I go? A laboratory analysis of investment opportunities under ambiguity  |
| Authors: | | Viefers, Paul |
| Issue Date: | | 2012 |
| Series/Report no.: | | Discussion Papers, German Institute for Economic Research, DIW Berlin 1228 |
| Abstract: | | This paper investigates the impact of uncertainty on an irreversible investment decisions in the laboratory. Subjects own the option to seize a claim on the future sum of realizations from an (ambiguous) random walk. I contrast model predicitions of the Subjective Expected Utility model (SEU, Savage, 1954) with model predictions made by Multiple-prior Expected Utility models (MEU, Gilboa & Schmeidler, 1989; Epstein & Schneider, 2003b). I present an experimental design that allows to identify behaviorally meaningful deviations from SEU. Observed behavior is at odds with the SEU prediction. On average, subjects in a treatment group, facing an ambiguous random walk, exhibit an ambiguity premium that presents a mark-up on average reservation profits in a control group. Hence, subjects shun to expose themselves to an ambiguous payoff process and invest later than participants facing a risky payoff process. |
| Subjects: | | Ambiguity aversion multiple priors optimal stopping irreversible investment |
| JEL: | | D80 D83 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des DIW DIW-Diskussionspapiere
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