Spent the last few hours of the night reading about Real Options. I’ve probably read through the same material a couple of times now but there seem to always be new information to take in and questions that I discover I still have no answers to. So in the midst of trying to uncover the intricacies of my finance topics, I am comforted by the fact that the very thing that I’m spending so much time and effort in learning right now would not only help me do well in my exams, but also help me make the most optimal decision that I can to something as defining as… finding a life partner.

Here I quote a paragraph from an academic journal by Dixit and Pindyck (1995), published in the Harvard Business Review.

Marriage is another decision that can be analyzed in the same manner. It is costly to reverse, and there is significant uncertainty about future happiness or misery. Therefore, one should enter into it in due caution and only when the expected return is sufficiently high. The criteria should become stiffer as the social cost of separation increase: for example, in some religions or cultures. Courtship is the equivalent of exploratory or R&D investment. Even if the expected return is not very high, one should be willing to undertake courtship because it creates a valuable option – namely the opportunity but not the obligation to follow up or not to, according to the information revealed by the initial steps.

And all that was from an article titled The Options Approach To Capital Investments. The essence of the journal was that it is misleading to make investment decisions based on conventional analytical tools without also taking into account the value and associated benefits of having options in making any decision. So we may just end up rejecting a project that have future benefits when it has been initially thought as unprofitable, and vice versa, accepting a project just because it looks good in the short run.

Marriage, like financial investments, thrive in an environment that is uncertain and where future prospects cannot be reliably estimated. So that’s when options come into play. The inherent characteristics of financial options, as some of you may know, is that its value increases with, among other things, time, information updates and the ability to respond to new pieces of information. Of course, as profit-maximizing individuals, we would only exercise an option when we expect to get the highest returns from it. Putting all that finance lingo into context, it’s the same to say that we don’t just get married to a person just because we’ve been dating for awhile now. Nor the next person who is smart, good looking, or rich. We wait and wait, until we think that okay, this is it. This is when I’m going to get a windfall of a lifetime’s supply of joy and happiness. And the best thing (and also the worst)? If by any chance your “investment” end up being a bad one, all you can lose are the initial resources (oh, our poor hearts) put into acquiring the option.

But how do we know when is the right time? We don’t. But the fact that we have the discretion to “kill” the option or wait some more makes the investment that little bit more valuable. I like how the authors equated courtship with R&D, where the costs are high but benefits and outcomes cannot be quantifiable until later on in an investment’s life. Essentially, that’s what dating is all about. You pour your heart and soul into it, all the time never knowing if you will get out of it more than what you’ve sowed. So by investing in R&D (=courtship), what you’re doing is narrowing down the uncertainty and receive information on the viability of the investment along the way. But the thing with love that sets it apart from money-making investments is that we don’t love someone just because of the promise of a quick buck and potential returns. :)

But marriage, ahh, that’s a different story that more than meets the eye, which requires thorough analysis and deeper evaluation, the kind that high risk investments call for. I’m only barely scratching the surface here because there is so much wisdom to take away. But for now, I really should get back to studying instead of deviating to real life matters and thinking about marriage ohmygawd! And the closing advice from the authors?

To make intelligent investment choices, managers need to consider the value of keeping their options open. In this case, we don’t think there is any option.

;)