Risky choices in strategic environments: An experimental investigation of a real options game

Giovanna Lo Nigro, Azzurra Morreale, Luigi Mittone

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


Managers frequently make decisions under conditions of fundamental uncertainty due the stochastic nature of the outcomes and competitive rivalry. In this study, we experimentally test a theoretical model under fundamental uncertainty and competitive rivalry by designing a sequential interaction game between two players. The first mover can decide either to choose a sure outcome that assigns a risky outcome to the second mover or to pass the decision to the second mover. If the second player gets the chance to decide, she can choose between a sure outcome, conditioned by the assignment of a risky payoff to the first mover, or the sharing of the risky outcome with the first mover. We then introduce the following experimental treatments: (i) relegating second-mover participants to a purely passive role and substituting them with a random device (absence of strategic uncertainty - that is, when the source of uncertainty is a human subject); (ii) providing information about the behaviour of second-mover counterparts; and (iii) completely removing the second-mover participant.We find that decision makers are sensitive to the presence or absence of strategic uncertainty; indeed, in the presence of strategic uncertainty, first movers more often diverge from the behaviour predicted by the model. Given our experimental results, the theoretical model needs to be revisited. The standard model of monetary payoff-maximizing agents should be substituted by one of decision makers who maximize a utility function which includes the psychological cost induced by strategic uncertainty. (C) 2019 Published by Elsevier B.V.
Original languageEnglish
Pages (from-to)143-158
Number of pages16
JournalEuropean Journal of Operational Research
Publication statusPublished - 2019

All Science Journal Classification (ASJC) codes

  • General Computer Science
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


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