Investment under Uncertainty [Hardcover]

Avinash K. Dixit (Author), Robert S. Pindyck (Author)

Book Description

ISBN-10: 0691034109 | ISBN-13: 978-0691034102 | Publication Date: January 10, 1994

How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending.

This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.

Editorial Reviews

From the Inside Flap

"[The authors'] approach has powerful implications for investors in marketable assets as well. No investment professional or CFO can afford to ignore this brilliant new book."--Peter L. Bernstein, author of Capital Ideas: The Improbable Origins of Modern Wall Street

"Avinash Dixit and Robert Pindyck have successfully applied to capital budgeting the ideas and techniques of option pricing that have so enriched our understanding of financial markets."--Merton H. Miller, Nobel Laureate in Economics

Product Details

• Hardcover: 476 pages
• Publisher: Princeton University Press (January 10, 1994)
• Language: English
• ISBN-10: 0691034109
• ISBN-13: 978-0691034102
• Product Dimensions: 9.2 x 6.4 x 1.5 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 3.8 out of 5 stars  See all reviews (16 customer reviews)
• Amazon Best Sellers Rank: #405,344 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

52 of 57 people found the following review helpful:

2.0 out of 5 stars Not For The Faint-Hearted, January 28, 2000

By 

Dr. David P. Newton "Prof. D. P.Newton" (Nottingham University and Manchester Business Schools, UK) - See all my reviews
(REAL NAME)   

This review is from: Investment under Uncertainty (Hardcover)

Investment Under Undertainty by Avinash Dixit and Robert Pindyck has been an important book in the 1990's because it introduced a relatively new subject to a new and eager audience when there was little else available outside of original research papers. Many of us are grateful to the authors for this introduction. However, newcomers should be aware that they omit large and crucial details of implementation [example: chapter 4, section 1H, pages 110-112 including the graphs on page 111: a newcomer will be lost; if you wait until the appendix to chapter 10, on numerical solution, then you may or may not note the printing errors]. The book is not for the faint-hearted beginner; even the simplest material, such as valuation of a perpetuity (see Corporate Finance by Brealey & Myers - very easy) occurs in a form which the beginner or skim-reading manager might not readily recognise (chapter 5, section 1A, pages 138-139); but then this book is not for them.

See also Real Options by Lenos Trigeorgis, who writes as if he keenly wants you to have fast access to his subject. For someone writing purely on the mathematical finance aspects, read anything by Paul Wilmott, who is clearly both clever and an exceptional educator

14 of 17 people found the following review helpful:

5.0 out of 5 stars State of the art -- but math is a required subject, August 23, 1999

By A Customer

This review is from: Investment under Uncertainty (Hardcover)

Let me say that this is not a book for those looking for investment advice or get-rich-quick schemes. It is also not a book for those who think that an MBA and an HP12C are all you need to understand the basic theory behind investments, options, etc.

It is a mathematical subject...and to those with a good mathematical background, the book is remarkably well-organized and easy to understand. I found this book to be very helpful in my research.

11 of 14 people found the following review helpful:

5.0 out of 5 stars dealing with uncertainty, January 6, 2000

By 

Jihe Song (Edinburgh, Scotland, UK) - See all my reviews

This review is from: Investment under Uncertainty (Hardcover)

When searching for a framework for my PhD, I encountered Dixit's 1991 exposition on investmetn under uncertainty, in Journal of Economic Perspective. I was immeadiately hooked on option theory and its applications. Both authors of this splendid book are authorities in this field. The book is ideal for advanced MBA students with some mathamatics background. It is also suitable for PhD students in economics and finance. However students with math or engineering backgrounds may also benefit from reading this book.

As this book has repeatedly demonstrate, investmet in a uncertain world involves exercising an option. I mat asure the readers and buyers alike, investing in this book will yield high returns for your time and money.