Abstract: This paper argues that increased uncertainty, in certain
situations, may actually encourage investment. Since earlier studies
mostly base their arguments on the assumption of geometric Brownian
motion, the study extends the assumption to alternative stochastic
processes, such as mixed diffusion-jump, mean-reverting process, and
jump amplitude process. A general approach of Monte Carlo
simulation is developed to derive optimal investment trigger for the
situation that the closed-form solution could not be readily obtained
under the assumption of alternative process. The main finding is that
the overall effect of uncertainty on investment is interpreted by the
probability of investing, and the relationship appears to be an invested
U-shaped curve between uncertainty and investment. The implication
is that uncertainty does not always discourage investment even under
several sources of uncertainty. Furthermore, high-risk projects are not
always dominated by low-risk projects because the high-risk projects
may have a positive realization effect on encouraging investment.