Bandits and Bounties: The Intersection of Information Search and Investment Decisions

• In Event: Earnings Management, Investments & Corporate Fraud

Abstract

This note describes two scenarios where the problem of information search interacts with the firm’s investment decisions. Investment decisions cannot be made separately from the need to acquire information. The scenarios are illustrated with easy-to-follow numerical examples. In both scenarios the firm should choose what might myopically appear as the lower NPV alternative in order to efficiently deal with the information search problem. Vignettes put the numerical examples in their real-world context.

Authors

• steven schwartz, Binghamton University

• Richard A Young, Ohio State University

• Anthony Meder, SUNY-Binghamton