On the Investment-Uncertainty Relationship

A Game Theoretic Real Option Approach

Authors

  • Elmar Lukas
  • Andreas Welling

DOI:

https://doi.org/10.24352/UB.OVGU-2018-502

Keywords:

real option, investment, uncertainty, managerial flexibility, game theory

Abstract

This paper examines the effect of uncertainty on investment timing in a game theoretical real option model. We extend the settings of Gryglewicz et al. (2008), Wong (2007), and Sarkar (2000) by a more general assumption, i.e. the investment is also influenced by the actions of a second player. The results show that a U-shaped investment-uncertainty relationship generally sustains. However, timing of an investment occurs inefficiently late. Moreover, we show that the influence of uncertainty on the associated first-mover advantage becomes ambiguous, too.

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Published

2018-09-18

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Section

Artikel