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Julien Prat
''Increasing optimism and demand uncertainty''
( 2005, Vol. 12 No.10 )
By allowing the initial prior over market size to be a mixture of distributions, this paper extends the model of irreversible investment under uncertainty proposed by Rob (1991). We find that capacity expansion fuels investors' optimism. It is shown in the paper that the crash is always preceded by a boom when the initial prior is a mixture of exponential distributions.
Keywords: Learning Investment Uncertainty
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : Jun 14 2005 Manuscript Accepted : Jun 15 2005

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