There is no greater gap between economic theory and econometric practice than that which characterizes the literature on business investment in fixed capital. According to the neoclassical theory of capital, as expounded for example by Irving Fisher, a production plan for the firm is chosen so as to maximize utility over time. Under certain well-known conditions this leads to maximization of th...

The real options capture the importance of the managerial team’s role in creating value through investment projects. The investments in real assets have a set of options that managers can exercise during the period of the project to increase the value of the assets or to limit the eventual losses. This options have their own value. The traditional methods for investment project evaluatioan, bas...

This paper experimentally investigates investment behavior. We find that global risk – i.e. risk independent of an agent’s investment decision (like political risk) – substantially decreases investment. Also, if the capital used for investment is based on previous earnings (effort) instead of an endowment, investment decreases substantially. These results are neither in line with expected utili...

In this study we develop implications for the return distribution of firms with embedded strategic growth options. In our model we integrate real option theory with a Cournot-Nash framework where two firms choose output levels endogenously and may have investment-timing differences. Simulations of the returns of the strategic growth option show that traditional option variables, such as the val...

This paper experimentally investigates investment behavior. We find that global risk – i.e. risk independent of an agent’s investment decision (like political risk) – substantially decreases investment. Also effort to obtain the capital used for investment decreases investment substantially. These results are neither in line with expected utility theory nor with psychologically orientated theor...

The role of past investment in parental-care behaviour has often been controversial. Some researchers have argued that organisms basing present investment on past investment are committing the 'Concorde fallacy'. Others have incorporated life history theory to suggest that investing according to past investment is one component of investing according to expected future reproductive success: a p...

Real options valuation (ROV) considers the managerial flexibility to make ongoing decisions regarding implementation of investment projects and deployment of real assets. This paper introduces a simulation-optimization approach to valuing real investment options based on a model containing several decision variables and realistic stochastic inputs. Using this approach, the value of a portfolio ...

This paper studies a new renewable energy investment model through crowdfunding, which is motivated by emerging community solar farms. In this paper we develop a sequential game theory model to capture the interactions among crowdfunders, the solar farm owner, and an electricity company who purchases renewable energy generated by the solar farm in a multi-period framework. By characterizing a u...

First passage model specifies a credit default, when the underlying drops below a certain barrier. An investment failure often occurs unexpectedly and involves significant losses to the project value, which makes a great similarity to a default event preventing the investor paying back its debt. In this paper we aim to link the two theories, where an investment failure is determined through the...