Real options theory

Arkadiy V. Sakhartov

Chapter 8 in A Guide to Key Theories for Strategic Management, 2026, pp 133-146 from Edward Elgar Publishing

Abstract: Real options are opportunities for a firm to adopt future discretionary adjustments to the investment that the firm initially makes in a project. This definition can lead to many important predictions regarding such fundamental issues in strategy as “How do firms behave?” and “Why do some firms have superior performance?” Only a few such predictions follow from the provided definition using verbal reasoning. By contrast, most of them require the use of formal models based on dynamic optimization under uncertainty. This approach supports the theoretical uniqueness of real options theory vis-à-vis other theories of a firm's sequential, path-dependent choices. Despite the noted relevance to fundamental issues in strategy, real options theory has not been yet applied in the field as widely as other theoretical perspectives. Future research on real options can significantly enhance our understanding of how firms make strategic choices and why some firms have superior performance.

Keywords: Real Options; Uncertainty; Flexibility; Path Dependence; Sequential Choice; Dynamic Optimization (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035342846
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