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Flexibility and Uncertainty

Robert A. Jones¹; Joseph M. Ostroy²

¹ University of British Columbia · ² University of California, Los Angeles

The preserving of flexibility when faced with uncertainty is a neglected aspect of behaviour under risk. Yet it is an important factor in decisions to hold liquid assets or delay irreversible investment. This paper formalizes the notion of flexibility in a sequential decision context, and relates its value to the amount of information an agent expects to receive. A rudimentary money demand model is developed embodying these ideas, and the history of flexibility as an economic concept is traced.

DOI

10.2307/2297702

Volume

51 (1)

Pages

13

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