Investment Under Uncertainty: Testing the Options Model with Professional Traders

36 Pages Posted: 4 Jun 2010 Last revised: 29 Apr 2023

See all articles by John A. List

John A. List

University of Chicago - Department of Economics

Michael S. Haigh

Standard Chartered Bank

Date Written: May 2010

Abstract

An important class of investment decisions is characterized by unrecoverable sunk costs, resolution of uncertainty through time, and the ability to invest in the future as an alternative to investing today. The options model provides guidance in such settings, including an investment decision rule called the "bad news principle": the downside investment state influences the investment decision whereas the upside investment state is ignored. This study takes a new approach to examining predictions of the options model by using the tools of experimental economics. Our evidence, which is drawn from student and professional trader subject pools, is broadly consonant with the options model.

Suggested Citation

List, John A. and Haigh, Michael Stephen, Investment Under Uncertainty: Testing the Options Model with Professional Traders (May 2010). NBER Working Paper No. w16038, Available at SSRN: https://ssrn.com/abstract=1617040

John A. List (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Michael Stephen Haigh

Standard Chartered Bank ( email )

6 Battery Rd
049909
Singapore
65-8838-7318 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
63
Abstract Views
670
Rank
627,735
PlumX Metrics