Investments are based on expectations of future profits. The common perception of the investment and uncertainty relationship is that increased uncertainty reduces willingness to invest. Uncertainty is here defined as deviation from the expected outcome. In uncertain conditions, it may be difficult to establish a clear profit expectation. However, from the early development of investment theory the sign has been debated. Uncertainty can also be exploited for profit seeking and the sign may therefore be positive. Petroleum extraction is a complicated, slow and expensive process. Historically petroleum prices have been quite volatile, and it is a major uncertainty factor for petroleum producers. The forward looking nature of investment behavior creates several issues for investment theories and empirical modeling. Expectations of return and uncertainty are unobserved and challenging to quantify. When controlling for dynamic panel bias I find a negative relationship between investment and price uncertainty. If price uncertainty increases, investors on the Norwegian continental shelf are more likely to postpone or drop new investments.
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