A choice is worth something. It also costs.
Optionality gives a decision maker a way to participate in favorable outcomes while declining unfavorable ones. Paying too much for that flexibility can erase its benefit.
Inside this model
Commitment payoff = value − launch cost. Pilot payoff = max(value − launch cost, 0) − pilot cost. The pilot is assumed to reveal value perfectly before the launch decision. These are terminal payoffs, not an option-pricing formula.
Out in the world
A practical use
Test demand with a small prototype before committing to production; compare the value of being able to stop with the cost of the prototype.
A useful lens. Not a universal law.
- Real pilots reveal incomplete information and may delay entry. The model omits financing, time, competition and probabilities of project outcomes.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
Nassim Nicholas Taleb — Antifragile: a graphical tour ↗