On the Theory of Optimal Investment Decision¶
Hirshleifer, J. (1958). On the Theory of Optimal Investment Decision. Journal of Political Economy, 66(4), 329-352.
Cited by¶
2 citations across 2 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Discounting (Present Value)
- Hirshleifer (1958)
This sourceCompares present-value and internal-rate-of-return rules within a Fisherian framework and argues for the present-value rule; directly supports the claim that Hirshleifer demonstrated NPV's superiority for decision-making.
- Hirshleifer (1958)
Mechanisms¶
- Capital Budgeting Comparison
- Its strength is rigor: it converts "this investment is profitable" into "this investment beats the best thing the money could otherwise do," which is the entire meaning of the opportunity cost of capital — the return given up on the next-best use, and the reason a firm's hurdle rate exists at all.
This sourceFrames investment choice as a comparison between project returns and the relevant market rate or best alternative opportunity.
- Its strength is rigor: it converts "this investment is profitable" into "this investment beats the best thing the money could otherwise do," which is the entire meaning of the opportunity cost of capital — the return given up on the next-best use, and the reason a firm's hurdle rate exists at all.
Verification¶
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