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Option values and flexibility preference

Strazzera, Elisabetta (1998) Option values and flexibility preference. Working Paper. CRENoS.


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Preference for flexibility is a behavioral attitude displayed by people that prefer reversible to irreversible actions, and that are willing to pay a premium in order to maintain the possibility of changing their decision. This paper provides a functional characterization of preference for flexibility, based on the notion of option value. The proposed theory is shown to be useful to explain the success of marketing policies that guarantee reimbursement in consumption goods and financial markets. Moreover, it is possible to interpret some "puzzles" about observed economic behavior: for example, choice of apparently inferior solutions when economic, or political, choices involve high degrees of irreversibility.

Item Type:Technical Report / Working Paper / Project Report (Working Paper)
Date:December 1998
Institution:Universita' degli Studi di Cagliari
Divisions:Centri > CRENoS Centro Ricerche Economiche Nord Sud
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/06 Economia applicata
Uncontrolled Keywords:Flexibility, option value, marketing policies
ID Code:323
Deposited On:13 Nov 2008 10:47

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