A real options approach for entrepreneurs making decisions under uncertainty

The purpose of this study is to discuss the relationship between pricing method and entrepreneurial decision-making. Some limitations of net present value (NPV) analysis and the relative benefits of a real options approach are presented. Overviews of NPV analysis and similar methods are presented along with discussion of the reasons that these methods are inappropriate for decision making under uncertainty. A real options methodology, which is more appropriate to decision making under uncertainty, is also presented. Finally, an illustrative example problem of this methodology is provided.