Article

Making Sense of Real Options Reasoning: An Engine of Choice that Backfires?

Michael L. Barnett and Roger L. M. Dunbar

in The Oxford Handbook of Organizational Decision Making

Published in print March 2008 | ISBN: 9780199290468
Published online September 2009 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199290468.003.0020

Series: Oxford Handbooks in Business and Management C

 Making Sense of Real Options Reasoning: An Engine of Choice that Backfires?

More Like This

Show all results sharing these subjects:

  • Business and Management
  • Organizational Theory and Behaviour

GO

Show Summary Details

Preview

This article traces the development of real options reasoning (ROR) and details how problems in assessing the value of real options have made ROR difficult to implement. The article then describes how in practice, instead of focusing on explicit valuation, organizations use analogous reasoning to develop, select, and implement options that enable strategic flexibility and so enhance value. An illustrative case demonstrates how financial options can help this process by buffering core operations from changing market environments. The same illustration also shows that ROR fails to simultaneously create future choices while limiting costs. Moreover, where it does generate future choices, it does not prevent decision makers from making poor choices. Thus, the engine of choice that ROR suggests organizations should create may in fact backfire on those decision makers who try to implement it.

Keywords: real options reasoning; analogous reasoning; market environments; decision makers; organizations; poor choices

Article.  6992 words. 

Subjects: Business and Management ; Organizational Theory and Behaviour

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.