MULTIPLE EQUILIBRIA IN GAME THEORY: SHARING PROFITS VS. MARKET PRICE
||Marcato, Gianluca; Limentani, Giovanni
||MULTIPLE EQUILIBRIA IN GAME THEORY: SHARING PROFITS VS. MARKET PRICE
||17th Annual European Real Estate Society Conference in Milan, Italy
||The application of game theory to real option analysis is useful to understand the interaction between agents and the reason why developers tend to develop earlier than expected. Using a discrete time model, we critically present the limits of the Smit and Ankum (1993) model and propose a modified version of the same by assuming a profit sharing market environment to overcome multiple equilibria (i.e. situations where rules of thumb are used to determine the agents' profit). Finally, we introduce a speed of reaction to test different competition levels and we numerically show that the aggressiveness of developers reduces option values.
||Game Theory, Real Options, Real Estate Development
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||Real Estate Finance & Investment
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