Real Options and Ambiguity Aversion

How Ambiguity affects Real Options is a recent research topic. Earlier research incorporated the maxmin model to estimate the effects, but the maxmin model groups together the perceived ambiguity level and the decision makers’ ambiguity preference. Here I create a Real Option model using a naïve -Maxmin model, effectively separating the preference and the ambiguity level. A decision maker expresses his or her preference by creating a weighted average of an extremely ambiguity averse and extremely ambiguity loving preference. I show the merit of the -Maxmin model by comparing it to the Maxmin model and the ambiguity neutral model normally used. From an academic perspective the results are informative and interesting for future development. But in the field of economic implementation of the Maxmin and -Maxmin model work needs to be done, if real life implementation is what we seek.