We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project...

This paper presents a novel take on the effect of uncertainty on investor learning about managerial skills by examining the fund flow-performance relationship in ESG rated funds in the context of climate uncertainty. Utilizing a large sample of mutual funds domiciled in Australia and New Zealand...

We propose a theory of rational "Rush", emphasizing the quantity of rational over-investment in contrast to the theory of irrational price "Bubble". We illustrate an important friction when financing breakthrough innovations: non-excludability and spillover of uncertain knowledge due to...

We develop a way of ranking and scoring actively managed funds and investment strategies. Our performance measure accounts for the feature that investors may exhibit caution, via the mechanism of ambiguity aversion, when evaluating investment strategies. Linking developed theory to data, we...

We consider a market economy where two rational agents are able to learn the distribution of future events. In this context, we study whether moving away from the standard Bayesian belief updating, in the sense of under-reaction to some degree to new information, may be strategically convenient...

We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback...

How do people cope with tail risk? In a lab experiment that removed informational and incentive confounds, subjects overwhelmingly behaved like Bayesian learners. The results of simulations further revealed that if one is to survive under tail risk, one needs to follow the Bayesian approach, as...

Neoclassical finance assumes that investors are Bayesian. In many realistic situations, Bayesian learning is challenging. Here, we consider investment opportunities that change randomly, while payoffs are observable only when invested. In a stylized version of the task, we wondered whether...

The behavioural finance literature attributes the persistent market misvaluation observed in real data to the presence of deviations from rational thinking of the actors involved. Cognitive biases and the use of simple heuristics can be described using expected utility maximising agents that...

Using the mutual fund industry as a laboratory, we demonstrate theoretically and empirically that economic policy uncertainty an affect investment decisions through an information rather than real options channel. Specifically, we find that fund flow-performance sensitivity decreases in...