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Calibrate

In: Dynamic Decisions Energy PIVOT, Adaptive Moves, Winning BOUnCE

Author

Listed:
  • Ricardo G Barcelona
  • Franz Heukamp

Abstract

To succeed financially, managers learn to adapt and pivot to an evolving market with uncertain payoffs that demand agility. However, risk-averse managers shun taking risks to avoid mistakes or incurring losses. This risk aversion inadvertently could lead to inaction. The causes lie in human biases and the methods managers used to evaluate investments. By ignoring how humans actually decide, managers misdiagnose the firm’s value by ignoring how managerial flexibility and the actions of rival firms alter competitive advantages. To partly remedy this, managers could better calibrate their investments’ value by funnelling their pipeline of prospects to convert tangible (or actionable) opportunities. By clustering prospects, financial tools are deployed to match against the appropriate contexts of the decisions. Through this structured thought process, managers can harness the diversity of human capabilities and pursue profitable solutions under ambiguities. This becomes feasible when managers can better align their business pursuits with a purpose rather than profit from problems that business helps to create.

Suggested Citation

  • Ricardo G Barcelona & Franz Heukamp, 2022. "Calibrate," World Scientific Book Chapters, in: Dynamic Decisions Energy PIVOT, Adaptive Moves, Winning BOUnCE, chapter 5, pages 241-293, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611979_0005
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    More about this item

    Keywords

    Energy; Energy Investments; Option Games; Real Options; Climate Finance; Sustainable Investment; Dynamic Decisions; Decision Uncertainties; Renewable Energy; Fossil Fuel; Carbon Tax; Energy Transition; Behavioural Economics; Political Economy; Financial Economics; Strategy and Competition;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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