Abstract: Real options theory emphasizes the value of small initial investments that provide a claim on the opportunity to make additional investments after the resolution of uncertainty. The theory, however, is built on assumptions grounded in efficient financial markets that are violated in many real world settings. We develop a behavioral theory of real options that formally embeds realistic assumptions about informational properties of the environment and behavioral properties of firms. Our key theoretical insight is that an option model of decision-making and a bandit model of experiential learning are fundamentally interrelated models of sequential decision-making under uncertainty. Our theory predicts conditions under which over- or under-commitment (exercising/terminating inappropriately) is likely, and provides a better estimate of the value of a real option.

Abstract: Performance feedback has been recognized as majorly influencing strategic behavior. By comparing it to the firm’s aspiration, it is supposed to indicate whether previous organizational behavior can be considered a success or a failure. Yet, this requires a clear signal as to which category the feedback falls into. However, research has shown, that feedback processes are much more complex. In this paper, we therefore turn our attention to the phenomenon of ambiguous feedback and shed light onto its effects on aspiration level adaptation as well as strategic behavior. By investigating how strategic decision makers in haute cuisine deal with ambiguous feedback and which mechanisms they use to substitute for the missing link, we open the black box of strategic behavior when clear feedback is missing.

Abstract: In this study, we examine the experiential learning effect in the US VC industry. Four findings are presented. First, there is significant learning effect in this context. One additional past investment is estimated to be associated with 0.07% increase in (successful) exit rate of the current year. Second, learning is outcome-driven. The positive effect of past investment experience is mainly driven by learning from failures. Third, learning is specific to financing stage. The performance of early round investment is only positively associated with the experience in the same round. Fourth, learning is also location-based. While experience from portfolio companies in locations different from the VC contribute more to the general performance, performance of investments in a specific location is only positively influenced by past experience in the same location.

Abstract: How firms can avoid overreacting to negative short-term feedback and maintain their long-term strategy intact? In this study I identify conditions that help organizations to achieve strategic commitment. Based on performance feedback model I research how wireless telecommunication operators’ adoption of 3G WCDMA technology – “the biggest ever gamble on the introduction of a new technology” (The Economist, 2004) – was impacted by the ambiguity in interpreting their own and others’ experience. I find that telecommunication operators’ own relevant prior experience helped them to maintain the course whilst vicarious learning may have caused deviation from earlier behavior. This study suggests that researchers should pay more attention how perceived performance feedback of the same event changes over the time and by observer.