Deepening the real options debate: Real options as dynamic optimization

Abstract Research Summary Is real option theory useful for management research? This topic was hotly debated two decades ago. Real options were said to be inapplicable to management research and to lack conceptual distinctiveness. Whereas responses to the claim about the non‐distinctiveness of real options were disparate, the concern about the theory's non‐applicability was considered remediable. Such responses left the impression that real options lost the debate, and the use of real options in management research started to stagnate. This paper reviews the opposing positions in the debate, establishes the conceptual distinctiveness of real options, and outlines responses to concerns about the theory's applicability to management research, thereby underscoring the promise of real option theory as a key pillar for research in strategic management. Managerial Summary Managers often face decisions about whether to invest, wait, expand, switch the use of resources, or exit a market under uncertainty. This paper explains why real options remain a valuable way to think about such decisions despite earlier criticism of the approach. It argues that the core strength of real options is not only in valuing investments but also in helping managers make better sequences of decisions over time by considering how today's choices affect tomorrow's opportunities. The paper also shows how real options can accommodate learning, changing information, organizational constraints, and behavioral biases rather than ignoring them. By viewing strategy as a dynamic process of optimizing decisions under uncertainty, managers can better preserve flexibility, allocate resources, and improve long‐term value creation in changing environments.