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Contribution Details
| Type | Conference or Workshop Paper |
| Scope | Discipline-based scholarship |
| Published in Proceedings | Yes |
| Title | An experimental study on real option strategies |
| Organization Unit | |
| Authors |
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| Presentation Type | paper |
| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Page Range | 1 - 36 |
| Event Title | 37th Annual Meeting of the European Finance Association |
| Event Type | conference |
| Event Location | Frankfurt am Main, Germany |
| Event Start Date | January 1 - 2010 |
| Event End Date | January 1 - 2010 |
| Abstract Text | We conduct a laboratory experiment to study whether people intuitively use real-option strategies in a dynamic investment setting. The participants were asked to play as an oil manager and make production decisions in response to a simulated mean-reverting oil price. Using cluster analysis, participants can be classified into four groups, which we label as "mean-reverting", "Brownian motion real-option", "Brownian motion myopic real-option", and "ambiguous". We find two behavioral biases in the strategies by our participants: ignoring the mean-reverting process, and myopic behavior. Both lead to too frequent switches when compared with the theoretical benchmark. We also find that the last group behaves as if they have learned to incorporating the true underlying process into their decisions, and improved their decisions during the later stage. |
| Other Identification Number | 1427; merlin-id:103 |
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