25 Years of Real Option Empirical Research in Management

Abstract

For several decades, management scholars have extolled the virtues of using real option logic when making decisions under uncertainty. Real option logic suggests that in such situations, firms might be better off deferring or staging investments, reducing potential financial losses, while at the same time securing an option to grow (or abandon) the investment when uncertainty abates. Our analysis of the empirical research published in leading management journals over the past 25 years suggests that while some progress has been made, much more work needs to be done. We still do not have the answers to critical questions such as: Which entrepreneurial/managerial traits impact the identification or exploitation of real options? Do multiple types of uncertainties interact with each other and influence real option decisions? Addressing these and other issues identified in our study can help improve our understanding of the usefulness of real option logic in management.