Irreversibility signifies the inability to costlessly revisit an investment or decision. When investments are either partially or completely irreversible, the initial cost of investment is partially unrecoverable at least. Irreversibility can be permanent if the initial state is never regained, or temporary if the initial state is returned after some time.
Published in Chapter:
Real Options Reasoning as a Tool for Managerial Decision Making
Bernadette Power (University College Cork, Ireland)
Copyright: © 2008
|Pages: 10
DOI: 10.4018/978-1-59904-843-7.ch086
Abstract
An understanding of human decision making is a fundamental step toward the development of effective intelligent decision support systems (Newell & Simon, 1972; Pomerol, 1997). Many methods have been put forth by decision theory to provide us with an understanding of human decision making and to enable individuals to make better decisions such as in utility maximization (Savage, 1954), satisficing (Simon, 1983), statistical and regression analysis, case-based reasoning (Gilboa and Schmeidler, 1995, 2000), game theory (von Neumann & Morgenstern, 1947), decision trees (Yuan & Shaw, 1995), and so forth. This article focuses on a new approach, namely, real options analysis, as a tool for effective decision making by management when faced with uncertainty in its environment.