Calibrate

Ricardo G Barcelona and Franz Heukamp

Chapter 5 in Dynamic Decisions:Energy PIVOT, Adaptive Moves, Winning BOUnCE, 2022, pp 241-293 from World Scientific Publishing Co. Pte. Ltd.

Abstract: To succeed financially, managers learn to adapt and pivot to an evolving market with uncertain payoffs that demand agility. However, risk-averse managers shun taking risks to avoid mistakes or incurring losses. This risk aversion inadvertently could lead to inaction. The causes lie in human biases and the methods managers used to evaluate investments. By ignoring how humans actually decide, managers misdiagnose the firm’s value by ignoring how managerial flexibility and the actions of rival firms alter competitive advantages. To partly remedy this, managers could better calibrate their investments’ value by funnelling their pipeline of prospects to convert tangible (or actionable) opportunities. By clustering prospects, financial tools are deployed to match against the appropriate contexts of the decisions. Through this structured thought process, managers can harness the diversity of human capabilities and pursue profitable solutions under ambiguities. This becomes feasible when managers can better align their business pursuits with a purpose rather than profit from problems that business helps to create.

Keywords: Energy; Energy Investments; Option Games; Real Options; Climate Finance; Sustainable Investment; Dynamic Decisions; Decision Uncertainties; Renewable Energy; Fossil Fuel; Carbon Tax; Energy Transition; Behavioural Economics; Political Economy; Financial Economics; Strategy and Competition (search for similar items in EconPapers)
JEL-codes: C58 G3 G30 O13 P48 Q43 Q5 (search for similar items in EconPapers)
Date: 2022
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