This book argues that thinking in terms of options and game theory can help managers as they approach key investment questions such as "When is it best to invest early to preempt competition and when is it best to wait?" and "How can a company effectively analyze available growth options?"
The authors detail how game theory and options analysis can be applied to corporate investment decisions. Game theory, developed by John Nash, whose life was immortalized in the film A Beautiful Mind, is essentially a way to analyze strategies that players in the marketplace use to maximize winnings. (Real option theory analyzes situations as a series of available options progressing toward a specific goal.)
In terms of options analysis, the authors explain that "since it recognizes that investments tend to be sequentially related over time, real options analysis is particularly suitable to valuing strategy instead of isolated projects. In this framework, strategic projects are not considered as stand-alone investments, rather as links in a chain of interrelated investment decisions, the earlier of which set the path for others to follow."
All of this offers valuable food for thought for managers as they attempt to invest strategically to guarantee a company's successful future moves. The authors, both professors of finance, claim that not enough has been written that links theories of strategic management with those of corporate finance. This book serves to fill that gap. —Ann Cullen