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Discrete Dynamics in Nature and Society
Volume 2014 (2014), Article ID 803073, 11 pages
http://dx.doi.org/10.1155/2014/803073
Research Article

Project Capital Allocation Combination Equilibrium Decision Model Based on Behavioral Option Game

1School of Business, Central South University, Changsha 410083, China
2Institute of Metal Resources Strategy, Changsha 410083, China

Received 13 March 2014; Accepted 20 May 2014; Published 18 June 2014

Academic Editor: Fenghua Wen

Copyright © 2014 Meirui Zhong et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Aiming at option value of the project and fairness preference psychological utility features, this paper modified objective function between players by option game equilibrium and utility function of project managers by inequity aversion. Therefore, under the symmetric and asymmetric information conditions, a project capital allocation combination equilibrium decision model has been built. It draws a conclusion that the option value of projects has changed the utility function of shareholders and managers in capital allocation, whereas fairness preferences of the project managers have changed the way of allocation through psychological utility. These two effects have influenced the trigger point of capital allocation decision-making. One is the decrease of trigger point owing to capital allocation decision-making of a CEO affected by the option value; the other is the reaction due to the crowding-out and crowding-in effect of the project manager’s fairness preference, which restrains the severity of underinvestment. Therefore, a good incentive plan should be a balance among insurance, incentive, and fairness, not only a balance between insurance and incentive.