Oprea, Ryan; Friedman, Daniel; Anderson, Steven T. - In: Review of Economic Studies 76 (2009) 3, pp. 1103-1124
Human subjects decide when to sink a fixed cost C to seize an irreversible investment opportunity whose value V is governed by Brownian motion. The optimal policy is to invest when V first crosses a threshold V* = (1 + w*)C, where the wait option premium w* depends on drift, volatility, and...