Review of Financial Studies Vol. 35 No. 9 2022
Group-Managed Real Options
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.
- DOI
- 10.1093/rfs/hhab100
- Volume
- 35
- Issue
- 9
- Pages
- 4105-4151
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref