Inertia in disinvestment decisions: experimental evidence

Mußhoff, Oliver; Odening, Martin; Schade, Christian; Maart-Noelck, Syster C.; Sandri, Serena

doi:10.1093/erae/jbs032

Cited by 41 publications

(32 citation statements)

References 52 publications

(47 reference statements)

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“…Nevertheless, the observed disinvestment reluctance is even more pronounced than predicted by the ROA. These findings are consistent with previous investigations (Oprea et al 2009;Sandri et al 2010;Musshoff et al 2013;Maart-Noelck and Musshoff 2013).…”

Section: Test Of H1 'Roa Superiority To Npv'supporting

confidence: 94%

“…Decision-makers tended to wait even longer than indicated by the ROA. In a recent study, Musshoff et al (2013) experimentally analysed the exit decision of 63 farmers using the ROA. Their results showed that the ROA predicted the actual disinvestment decisions better than the classical investment theory.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

“…Experimental methods allow them to study the question of interest more precisely by controlling extraneous factors, which may affect individual behaviour and thus improve internal validity (Roe and Just 2009). Studies that use experimental methods in examining the ROA to (dis)investment decisions include Yavas and Sirmans (2005), Oprea et al (2009), Sandri et al (2010), Musshoff et al (2013), and Maart-Noelck and . However, these studies come to different conclusions regarding the explanatory power of the ROA.…”

Section: Introductionmentioning

confidence: 99%

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Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours

Ihli

Maart-Noelck

Mußhoff

2013

Aus J Agri & Res Econ

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In this article, we analyse the (dis)investment behaviour of farmers in a within-subject designed experiment. We ascertain whether, and to what extent, the real options approach (ROA) and the classical investment theory can predict farmers' (dis) investment behaviour. We consider a problem of optimal stopping, stylising an option to (dis)invest in agricultural technology. Our results show that both theories do not explain exactly the observed (dis)investment behaviour. However, some evidence was found that the ROA predicted the decision behaviour of farmers better than the classical investment theory. Moreover, we found that farmers learn from repeated investment decisions and consider the value of waiting over time. Socio-demographic and farm-specific variables also affect the (dis)investment behaviour of farmers.

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Section: Test Of H1 'Roa Superiority To Npv'supporting

confidence: 94%

Section: Theory and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours

Ihli

Maart-Noelck

Mußhoff

2013

Aus J Agri & Res Econ

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“…The study revealed a relationship between the disinvestment decisions given by participants and the disinvestment triggers calculated according to a formal optimal stopping benchmark compatible with real-options reasoning. The findings of this study are consistent with those reported by Musshoff et al (2012), who carried out a disinvestment experiment with farmers. All these aforementioned studies mainly focus on the investment behavior of students and entrepreneurs in Western industrialized countries.…”

Section: Introductionsupporting

confidence: 92%

Real options or net present value?

Tubetov

Maart-Noelck²,

Mußhoff³

2013

Agricultural Finance Review

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Purpose -The purposes of the study are to compare the investment behavior of farmers in Kazakhstan as a transforming country and in Germany as a Western industrialized country as well as to analyze whether the investment behavior of farmers is consistent with the normative benchmarks of the net present value approach or the real options (RO) approach. Design/methodology/approach -The paper conducted an experiment with 100 Kazakhstani and 106 German farmers. The first part of the experiment describes an investment opportunity in an agricultural and in a non-agricultural treatment. The second part refers to a Holt and Laury lottery to determine farmers' risk attitude that could influence the investment behavior. Findings -The results show that both approaches do not provide an exact prediction of the investment behavior of farmers. However, German farmers invest later than Kazakhstani farmers meaning that the investment behavior of German farmers is closer to the RO approach. This might imply that German farmers are more likely to take into account the value of flexibility when making investment decisions than Kazakhstani farmers. Research limitations/implications -Since investment behavior is country-specific, it is worth investigating whether farmers from other transforming countries would show different investment behavior compared to farmers from other Western industrialized countries. Furthermore, decision-making behavior related to investments could be different from that related to disinvestments. Therefore, it may be interesting to analyze the disinvestment decisions of farmers in transforming and Western industrialized countries. Practical implications -The results show that it is not acceptable to apply the results of experiments investigating the investment behavior of entrepreneurs in a transforming country to entrepreneurs in a Western industrialized country and vice versa. Furthermore, training for farmers is needed because there is still room for improvement in order to achieve the RO benchmark. Finally, taking into account RO effects could improve the results of policy impact analysis. Originality/value -This is the first experimental study comparing the investment behavior of farmers from a transforming country and from a Western industrialized country.

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“…Oprea et al (2013) investigated learning effects of students during an investment experiment. Sandri et al (2010) and Musshoff et al (2013) also analysed the predictive power of the RO approach in an experimental setting. However, both studies focused on a disinvestment treatment, which was modelled as a dynamic problem of optimal stopping.…”

Section: Introductionmentioning

confidence: 99%

The impact of price floors on farmland investments: a real options based experimental analysis

2013

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Price floors are a common instrument for market intervention to stimulate investments. In some cases, it can be observed that a price floor does not have the stimulating effect. We experimentally analyse the investment behaviour of students who take the role of farmers. The experiment considers an investment problem under uncertainty in a 'with price floor' and a 'no price floor' treatment, stylizing a decision to take an ongoing farmland investment option. We compare the actual investment behaviour with normative benchmarks of the net present value and the real options approach. Furthermore, we look at order and learning effects. The results show that the price floor has no significant impact on the willingness to invest, whereas the effects of order were statistically significant. The investment reluctance arising from an abolishment is stronger than the investment stimulation arising from the introduction of a price floor. Furthermore, neither the net present value nor the real options approach is appropriate to predict the investment behaviour in general. Nevertheless, the predictions of the real options approach enable an approximation of the participants' investment behaviour if the individuals have an adequate chance to learn from personal experience.

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Inertia in disinvestment decisions: experimental evidence

Cited by 41 publications

References 52 publications

Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours

Does timing matter? A real options experiment to farmers' investment and disinvestment behaviours

Real options or net present value?

The impact of price floors on farmland investments: a real options based experimental analysis

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