Real Options Reasoning in Business and Life

When the future is uncertain and a decision is hard to undo, the freedom to choose later is worth something.

Should you build now or wait for better information? Go all in, or take a small first step? Expand the business, or keep cash in reserve? Take the job, or do the master’s degree first? These decisions look different, but they share the same structure. Finance calls it a real option.

Real options theory has changed how economists and finance professionals think about investment under uncertainty, but it is usually wrapped in heavy mathematics. This book contains no equations. It explains the reasoning in plain language, with simple numbers and examples from business and everyday life.

You will learn:

• why waiting can be valuable, and when it is not;
• when to act: how uncertainty, the cost of waiting and closing windows shape the right moment;
• whether to go all in or in stages, and the value of learning by doing;
• how to handle sudden events: when to raise the bar, when to hurry, when to wait for a storm to pass, and how to avoid ruin;
• how to judge booms and slumps that may not last;
• what happens when the decision-maker is not the one who pays: lenders and borrowers, founders and investors, managers and shareholders, insiders and outsiders;
• how competition turns waiting into a race;
• how options change when the risk is yours alone: for entrepreneurs, families and investors who cannot spread their risk.

Every chapter ends with key ideas, “Life lens” applications to personal decisions, and questions to ask yourself before your next big decision.

About the author. Nicos Koussis is Associate Professor of Finance at Frederick University, Cyprus. He has researched real options for over two decades, publishing on investment timing, financing, supply chains and the green transition. He has also applied option thinking in practice, from valuation software at the Real Options Group to the evaluation of solar and battery investments for industry. He has been a visiting scholar at MIT and has taught real options at UC Berkeley.

A book in progress. This book is published the Leanpub way, while it is still being written. Buy it once and you get every update, new chapter and correction free. Reader feedback is welcome and helps shape the next version.