We analyze sequential investment decisions in an innovative project that depend on the investor's information about the project failure risk and its potential final value.
On-line portfolio is a sequential investment algorithm during a long period and makes portfolio decision without any statistical assumption about the behavior of the market.
We contribute to the literature by including a knock-out barrier option in an n-fold compound real option model to take account of immediate project failure in a multi-stage sequential investment project.
They developed a sequential investment model based on the binomial tree model.
We use the model to forecast optimal sequential investment decisions of a power plant operator with and without uncertainty about future CO2 allowance prices.
The entire demand range is divided into three areas, thus area I, waiting region (D, D), area II, sequential investment region (D, I) and area III, simultaneous investment region (I, I).
Consequently the diversified investment strategy, (I, D) and (D, I), is substituted by (D, I), a sequential investment strategy where the firm with lower marginal cost (firm Y in this case) will invest first.
The task consisted of 100 total trials divided among five markets, similar to previous versions of the sequential investment task (cf. Lohrenz et al., 2007).
During the sequential investment task, participants viewed a screen that contained a trace of the market activity at the top and information about the participant's earnings at the bottom (Fig. 1a).
Participants performed a sequential investment task (Fig. 1a) under two task conditions: a cognitive reappraisal task "Regulate," and a control task "Attend" (see Supporting Information for a full description).
