Wednesday, April 27, 2011

Doing nothing is an option

Real options are common in business - they represent the value of being able to choose to do something in the future.  An example of a real option is the option to expand production of a product if initial sales look good.

But real options can also include the option to not do something, as in the case of not drilling for oil when it might be more profitable to wait.  Unfortunately, the Federal Government doesn't understand real options and Felix has the story.