Group-Managed Real Options

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Event details

Date and time 23.04.2021 16:0017:30  
Place and room
Zoom
Speaker Lorenzo GARLAPPI, University of British Columbia
Category Conferences - Seminars

We study a standard real-option problem where decisions are made through voting by a group of agents 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 the majority. These coordination frictions hold in groups of any size, for general voting protocols, and are exacerbated by belief polarization.