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Cambridge Finance Workshop - Lorenzo Garlappi

Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
When Jun 03, 2021
from 01:00 PM to 02:00 PM
Where Online
Contact Name
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Lorenzo Garlappi (Sauder)

Title: Group-Managed Real Options

 

Abstract: We study a standard real-option problem where 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.

 

Paper link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3341017

 

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