With declining probabilities of success,the optimal-stopping strategy is to:
A)continue to invest until the venture becomes successful.
B)continue investing till sunk cost of investment is equal to zero.
C)not invest in the project at all.
D)discontinue investing when the expected profit is zero.
E)invest once to earn the highest profit and then discontinue investing.

Question

Quizplus · Accepted Answer

The optimal-stopping strategy is to discontinue investing when the expected profit is zero. As the probabilities of success decline, it becomes increasingly likely that the project will not yield any profit. Therefore, it is best to cut losses and invest in a different venture with better potential for success. Continuing to invest in a project with declining probabilities of success will only result in sunk costs and greater losses.

With Declining Probabilities of Success,the Optimal-Stopping Strategy Is To