When to Abandon a Research Project and Search for a New One

23 Pages Posted: 29 Feb 2016

See all articles by Kevin F. McCardle

Kevin F. McCardle

University of California, Los Angeles (UCLA) - Anderson School of Management

Ilia Tsetlin

INSEAD

Robert L. Winkler

Duke University - Fuqua School of Business

Date Written: February 29, 2016

Abstract

We investigate the cost of the opportunity delayed by working on one project with uncertain success rather than searching for a new project.

We answer the question: how long should a firm work on a research project with uncertain success before abandoning it if the only alternative is to search for a new project to work on? Rather than treating the opportunity as an exogenous alternative, this approach endogenizes the opportunity value and the attendant cost of its delay. We consider cases with both a finite and an infinite number of potential projects.

We derive the optimal stopping time and show that it increases with the discount rate and with the prior probability that the project can be successfully completed, and it decreases with the rates of new project arrival and project completion.

Keywords: Project management, Dynamic programming, Uncertainty, Bayesian updating, Optimal stopping

Suggested Citation

McCardle, Kevin F. and Tsetlin, Ilia and Winkler, Robert L., When to Abandon a Research Project and Search for a New One (February 29, 2016). INSEAD Working Paper No. 2016/10/DSC. Available at SSRN: https://ssrn.com/abstract=2739699 or http://dx.doi.org/10.2139/ssrn.2739699

Kevin F. McCardle

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Ilia Tsetlin (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Robert L. Winkler

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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