The Resolution of Investment Uncertainty Through Time

Investments in operating assets with identical expected discounted return and identical risk characteristics (i.e., variances and higher moments) when measured at the outset may have significantly different patterns of uncertainty resolution over their lives. The concept of uncertainty resolution, although ambiguous, is a potentially important characteristic of an investment alternative. This paper explores the usefulness and limitations of the concept of uncertainty resolution in the evaluation of both single risky investments and in portfolios of risky investments. In cases where future investment opportunities are completely known the concept does not seem useful; however, in a more realistic setting where future investment alternatives are ill defined at present, the concept may prove useful. Further research is needed to explore fully the questions raised here.