Holding on for too long?An experimental study oninertia in entrepreneurs’ andnon-entrepreneurs’disinvestment choices

Disinvestment, in the sense of project termination and liquidation of assets including thecession of a venture, is an important realm of entrepreneurial decision-making. This studypresents the results of an experimental investigation modeling the choice to disinvest as adynamic problem of optimal stopping in which the patterns of decisions are analyzed withentrepreneurs and non-entrepreneurs. Our experimental results reject the standard net presentvalue approach as an account of observed behavior. Instead, most individuals seem tounderstand the value of waiting. Their choices are weakly related to the disinvestment triggersderived from a formal optimal stopping benchmark consistent with real options reasoning. Wealso observe a pronounced ‘psychological inertia’, i.e., most individuals hold on to a losingproject for even longer than real options reasoning would predict. The study providesevidence for entrepreneurs and non-entrepreneurs being quite similar in their behavior....