Bounded Possibilities

Ricardo G Barcelona and Franz Heukamp

Chapter 4 in Dynamic Decisions:Energy PIVOT, Adaptive Moves, Winning BOUnCE, 2022, pp 189-240 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Some managers see uncertainties as indistinguishable from risks. This is attributed to the popular notion of risk as an exposure to danger or losses. With the fear of unknowns eliciting a similar response, avoiding uncertainties equates to minimising losses. Unfortunately, this is a stance that leads managers to misdiagnose opportunities. For this reason, when disruptions or crises strike and profits are squeezed, managers default to cost-cutting to keep the firm afloat. As managers cut and cut more with each down cycle, they lose sight of emerging technological shifts that lead to a strategic paradox: Why aim to be the best horse whip maker in the age of automobiles? Unresolved, managers persist in this contradiction that is hidden in plain sight: Dynamic markets are inherently volatile and uncertain in spite of managers’ best efforts to create an imagined predictability around their investments. A remedy is to understand, rather than ignore, the nature of uncertainties. As a result, by learning from others and converting the unknowns to knowns, managers could bridge the chasm between “complete ignorance” and “enlightened choices.” In tackling deep unknowns, managers can visualise and experiment to gain knowledge and experience, while nurturing enabling mindsets within the decision ecosystem.

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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