A Fuzzy Expert System for Solving Real-Option Decision Processes

Fuzzy Economic Review, Vol. 6, No. 2, pp. 51-73, November 2001

23 Pages Posted: 18 Jun 2009 Last revised: 30 Nov 2017

See all articles by Carlo Alberto Magni

Carlo Alberto Magni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering)

Giovanni Mastroleo

Università degli Studi della Calabria

Gisella Facchinetti

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics

Date Written: 2001

Abstract

This paper presents a new approach to real options. The current options-based models have provided new insights into capital-budgeting decisions. Unfortunately they are not widely used by corporate managers and practitioners as they are formally complex, rather difficult to understand and rest on strong implicit assumptions that considerably limit their scope of application. We propose a possible alternative by using a fuzzy expert system, on the basis of Mastroleo, Facchinetti and Magni (2001). We draw up a decision tree with multiple uncertain variables affecting the value of an investment opportunity, consisting of a defer option, a growth option, an abandonment option. Some simulations are conducted to test the economic soundness of the model as well as its consistency with the current models in the literature. A rather refined study can be accomplished by showing how inputs and outputs of the model interrelate one another.

Keywords: fuzzy logic, expert systems, real option

JEL Classification: G11, G31, C63, C67

Suggested Citation

Magni, Carlo Alberto and Mastroleo, Giovanni and Facchinetti, Gisella, A Fuzzy Expert System for Solving Real-Option Decision Processes (2001). Fuzzy Economic Review, Vol. 6, No. 2, pp. 51-73, November 2001 , Available at SSRN: https://ssrn.com/abstract=1421140

Carlo Alberto Magni (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering) ( email )

Italy

Giovanni Mastroleo

Università degli Studi della Calabria ( email )

Italy

Gisella Facchinetti

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

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