A search strategy for assessing a business opportunity

The optimal stopping model presented here explores opportunity assessment with reference to a tradeoff between, on the one hand, reducing decision accuracy and, on the other hand, both increasing search costs and a higher probability that the opportunity is grasped by a competitor. From this model we propose a heuristic that specifies three threshold lines to define four decision areas. Decision area 1 prescribes the business opportunity be accepted, decision areas 2 and 4 prescribe that search continue, and decision area 3 prescribes that the business opportunity be rejected. We use a simulation to investigate the robustness of the heuristic beyond the model's boundary conditions. Index Terms--Decision model, dynamic programming, entrepreneurship, innovation, opportunity recognition/search, optimal stopping, sequential information gathering.