Real options and Real life options

In finance, there is a concept of Real option valuation. It is a choice that a business may gain by undertaking certain endeavors. For example, by investing in a particular project, a company may have the real option of expanding, downsizing or abandoning other projects in the future.

The property of the real option is that they generally increase in value the more uncertain the values of the underlying variables. They generally increase in value the longer the time an option can be deferred.

Real life options are somewhat different. Real life options have many interdependent variables associated with it. And hence, unlike a real option, its value increases the more shorter the time duration of its expiry.

With a three/six month or 1 year real life option, it is very difficult to plan for medium term goals and perhaps even long term goals.

The Paradox of Choices

Our needs and the understanding of our needs tends to be poles apart when it comes to choices. We get to choose from tens of flavours for a face wash (Does it really matter whether it was a peach flavoured one or an apricot) and keep changing them but when the big important things come, we hardly have much chance to change the choice (which city to settle, who to marry, which house to buy, which career line to choose). Not impossible but very difficult. Such are the forces the humankind is forced to.

Justify anything a.k.a/via Contradictory proverbs

Its real funny, surprising and amusing that you can always reason out why you want to do something or why others should do something. Like for example: if you prefer to do something patiently and with a lot of thought and carefulness, and somebody asks you why are you doing it so slowly, you answer back "slow and steady wins the race". On the other hand if we were the other person getting bugged by the slowness, we argue "time and tide wait for none".

It is surprising that almost every proverb we know has an opposite proverb matching it.

Once we see the other side of things and appreciate the logic, you will come to the only conclusion "There is no real one right thing for anything"

Go ahead, read these contradictory proverbs:

All good things come to those who wait BUT Time and tide wait for no man.

The pen is mightier than the sword BUT Actions speak louder than words.

Wise men think alike BUT Fools seldom differ.

The best things in life are free things BUT There's no such thing as a free lunch.

Slow and steady wins the race BUT Time waits for no man.

Look before you leap BUT Strike while the iron is hot.

Do it well, or not at all BUT Half a loaf is better than none.

Birds of a feather flock together BUT Opposites attract.

Don't cross your bridges before you come to them BUT Forewarned is forearmed.

Doubt is the beginning of wisdom BUT Faith will move mountains.

Great starts make great finishes BUT It ain't over 'till it's over.

Practice makes perfect BUT All work and no play makes Jack a dull boy.

Silence is golden BUT The squeaky wheel gets the grease.

You're never too old to learn BUT You can't teach an old dog new tricks

What's good for the goose is good for the gander BUT One man's food is another man's poison.

Absence makes the heart grow fonder BUT Out of sight, out of mind.

Too many cooks spoil the broth BUT Many hands make light work.

Hold fast to the words of your ancestors BUT Wise men make proverbs and fools repeat them.

The Toto Nana Marketing assignment

Absolutely brilliant! :)

Any MBA guy will absolutely love this one and can relate to it very well...

http://www.pagalguy.com/2010/03/the-toto-nana-repositioning-assignment/

Two sides of a coin

I learnt a trick that is really useful for making decisions in this web world. Usually, when we don't understand a specific topic or want to know about something, we do a search of the topic in google or do the search on wiki. This is ok. But when you need information on topics that you going to make you decide on something important, this is not enough.

Eg: Say you are planning to buy a product made of Neem(a tree) for your family and assuming you didnt know about Neem before. Doing a google links gives wiki as the first link. I went through the page and understood all its benefits.

Now, does that mean I can just buy it and use it? Could there be any harmful effects of it?

So now I do a google for the words 'harmful neem' and I got multiple links saying the harmful effects of neem on children and on pregnant women.

This is my learning from my finance prof. Deepak Kapur: Do the google search as before and then do a google search with the contents "problems" along with the topic. The word problems/harmful effects, etc will give you the lesser known criticising view of the topic at hand. This tip/trick can be used to gauge the problems related to companies in the stock market to increasing your knowledge and for being more decisive and critical in your thinking.