Consider first moving eastward along line A, increasing exogenous uncertainty while holding endogenous uncertainty constant at a relatively low level.
QUADRANT I: LOW ENDOGENOUS UNCERTAINTY AND LOW EXOGENOUS UNCERTAINTY
Viewing the offshoring decision from the real options perspective, under conditions of both low endogenous and low exogenous uncertainty, client firms do not have to take an option to defer the action to offshore (McDonald & Siegel, 1986).
Ceteris paribus, client firms are likely to pursue captive offshoring model based in a foreign location when endogenous and exogenous uncertainty is low.
joint venture offshoring) by client firms when operating in host countries with low endogenous and low exogenous uncertainty environments.
QUADRANT II: HIGH ENDOGENOUS UNCERTAINTY AND LOW EXOGENOUS UNCERTAINTY
Thus, based on the above discussion we argue that clients will undertake a joint venture when utilizing host countries with high endogenous uncertainty and low exogenous uncertainty because the initial costs (due to loss of control) will be more than offset by the gains in learning and strategic flexibility.
third party offshoring model) by client firms when operating in host countries with high endogenous and low exogenous uncertainty environments.
In the two-armed bandit study, in which exogenous uncertainty is present, consistent deviations from the "maximizing" strategy, described by the authors as experimentation and hedging, are observed.
There is no strategic uncertainty, no risk, no exogenous uncertainty, and no complex computation.
The removal of all strategic uncertainty, risk, exogenous uncertainty, and complex computations is not sufficient to ensure that subjects choose an optimal decision.