The value of waiting

Economists talk about option value as a kind of value that attaches to waiting for more information relevant to some decision. Mostly it is applied to sinking large sums of cash into infrastructure (like power stations or gas pipelines) where if it does not work out, getting your money back will be hard.

In these circumstances, waiting (for example, to see what competitors intend to do or to see what the government is planning) can be valueable.

So, for example, if you were in Kyrgyzstan and thinking about taking an overnight trek, but you are not sure if it is going to rain, you could wait around a little bit and see what the weather does before setting off.

But there is always a difficult question of how long you should wait. Let’s say you had set off in the morning and caught a bus to the trailhead, and then set off up the river valley only to see menacing black clouds gathering overhead, hear thunder and see sheet lightening. Perhaps you had taken shelter under a clump of trees from the first heavy rains. But you still were not sure whether it would clear or not, and whether you could continue your trek as planned.

At some point you have to make a call though. And the value of extra time in Kazakhstan might be enough to cause you to head back to town early, even if you did spend most of the day trekking around in the foot hills at the base of the valley, pausing periodically to look pensively at the clouds.

Of course, once your mind was made up and you were almost back at the bus stop, you could well come across a friendly guy on an already-overladen horse who might offer you a lift to the top, and offer to kill a sheep for a feast that night. In three hours you could be there. You might take a photo or two (promising to send him a copy) and discuss your alternate plans (and the weather).

But perhaps you would decide that, after all, being wet and cold (even if not hungry) for a few hours to get to a high mountain valley where you could not see the mountains because of the clouds, only to come back this way tomorrow was a game not worth the candle (if that is the expression).

In these circumstances, the horse would probably be pleased too.