Real Options in themselves are not necessarily methods when it comes to making capital budgeting decision. According to Ross, et. al (2010)they help the decision maker answer the if/then/else structure once it has been established via quantitative computations if a project would be worthwhile investing in. Usually this is through the calculation of its Net Present Value (NPV). Positive NPV you invest, negative NPV you analyze further.

While traditional cash flow discounting approach assumes one decision pathway, real options consider multiple decision pathways. Meaning, even if a project has a positive NPV, using real options we can further analyze the decision taking into consideration the possibility of unforeseen events that may alter the outcome of the project either positively or negatively.

Guerrero 2007 stated it well by saying real options are just discounted cash flow plus learning and responding" it is an extension of the discounted cash flow approach that incorporates a simple model of learning.

My question is

With the above explanation do you think that there is a possibility of unethical corporate governance practices as it concerns the seeking of material non public information to help form an investment decision? Can regulation check the loop hole the use of real options create?

would you provide references for further reading