Abstract

To account for managerial decision flexibility in risky IT investments, Real Option Valuation (ROV) has been advocated. ROV formalizes managers’ intuition, thus creating a disciplined decision making process. However, evidence suggests that ROV is usually utilized intuitively by professionals, in the form of “Real Option Thinking”, and is subject to various judgmental biases. We focus on growth options for this study. Prior research has shown that, while valuing projects with real options, managers ascribe the greatest importance to projects with growth options. Similar results hold for IT projects, where IT managers perceive a growth option as adding more value to the project. This perception of growth options might suggest their vulnerability to the IT managers’ risk preferences, through Prospect Theory. By conducting a survey-based experiment among 150 IT professionals, our results indicate that gender and experience impact biases in growth option exercise decisions significantly, depending on project size. However, we also observe some exceptions.

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