Article2004

Real Options as Engines of Choice and Heterogeneity

Rita Gunther McGrath · Walter J. Ferrier · Aubrey L. Mendelow

277 citations0/0 files storedAcademy of Management Review

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Capital Investment and Risk Analysis Decision-Making and Behavioral Economics Innovation and Knowledge Management

Abstract

Four characterizations of options exist: (1) as a component of total firm value, (2) as specific projects, (3) as choices, and (4) as a heuristic for strategic investment. Option value exists when two conditions apply: future choices and potential for proprietary access to outcomes. Narrower boundary conditions are inconsistent with theory and incomplete for application. The option lens has promise for its power to shed economic insight into behavioral processes.

Citations in this library

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References

1963The Structure of Scientific Revolutions 1973The Pricing of Options and Corporate Liabilities 1991Exploration and Exploitation in Organizational Learning 1995The Theory of the Growth of the Firm 1977Determinants of corporate borrowing 2019American Economic Review 1921Risk, Uncertainty and Profit 1994Investment Under Uncertainty.

Cited by

2008International Joint Ventures and The Value of Growth Options 2008Real Options, International Entry Mode Choice and Performance 2010Risk Uncertainty and Supply Chain Decisions: A Real Options Perspective 2005Real Options in International Joint Ventures 2007Developing network insight 2019Developed country MNEs investing in developing economies: Progress and prospect 2013Market frictions as building blocks of an organizational economics approach to strategic management

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