1. Group-Managed Real Options.
- Author
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Garlappi, Lorenzo, Giammarino, Ron, and Lazrak, Ali
- Subjects
REAL options (Finance) ,OPTIONS (Finance) ,ECONOMIC decision making ,SOCIAL groups ,INVESTMENTS ,FINANCE - Abstract
We study a standard real-option problem in which sequential decisions are made through voting by a group of members with heterogeneous beliefs. We show that, when facing both investment and abandonment timing decisions, the group behavior cannot be replicated by that of a representative "median" member. As a result, members' disagreement generates inertia—the group delays investment relative to a single-agent case—and underinvestment—the group rejects projects that are supported by a majority of members, acting in autarky. These coordination frictions hold in groups of any size, for general voting protocols, and are exacerbated by belief polarization. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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